Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

INTERNATIONAL WESTMINSTER BANK BILL

LONDON DOCKLANDS RAILWAY (BECKTON) BILL

Orders read for consideration of Lords amendments.

To be considered on Thursday 13 July.

LONDON REGIONAL TRANSPORT (No. 2) BILL

Read the Third time, and passed.

Oral Answers to Questions — DEFENCE

Nuclear Defence Industry

Mr. French: To ask the Secretary of State for Defence if he has made an assessment of how many jobs are dependent upon the nuclear defence industry.

The Parliamentary Under-Secretary of State for Defence Procurement (Mr. Tim Sainsbury): Our very broad estimate is about 40,000.

Mr. French: What proportion of those 40,000 jobs does my hon. Friend expect would be placed in jeopardy if the Green party's defence policies were ever implemented?

Mr. Sainsbury: In that very unlikely event, all those jobs would be lost as well as a great number of others in the defence industry throughout the country.

Mr. John Marshall: Does my hon. Friend agree that much more important than the number of jobs involved is the fact that the peace of the world and the future of our country are dependent on the nuclear defence industry?

Mr. Sainsbury: I very much agree with my hon. Friend. The nuclear deterrent has proved its worth in the years of peace that we have enjoyed in Europe. I hope that we will continue to enjoy those years of peace because of our continued possession of an effective deterrent.

Nuclear Planning Group

Mr. Cran: To ask the Secretary of State for Defence when he next intends to discuss the modernisation of short-range nuclear weapons with members of the Nuclear Planning Group.

The Minister of State for the Armed Forces (Mr. Archie Hamilton): My right hon. Friend will next meet his

colleagues in the Nuclear Planning Group in the autumn, when they will discuss a range of matters concerning nuclear issues.

Mr. Cran: Does my hon. Friend agree that the Soviet Union modernised its tactical nuclear weapons in the 1980s—this decade—and that NATO, by trying to redress that imbalance, is not turning its back on peace but simply ensuring peace by having parity in such weapons in Europe?

Mr. Hamilton: That is correct. There is enormous numerical superiority in the Soviet systems, and they have been modernised all the way along. If we are to maintain the flexible response of the mix of nuclear and conventional weapons for our deterrence, it is important that these weapons are kept up to date.

Mr. Menzies Campbell: The justification for short-range nuclear weapons has been the gross imbalance in conventional forces in favour of the Warsaw pact. If President Bush's initiative is sucessful, to the extent that conventional arms reductions have been achieved or are substantially under way by 1992, is not the reality that there will be no willingness in the United States to develop a follow-on to Lance and even less willingness in the Federal Republic of Germany to have it deployed there?

Mr. Hamilton: The reality is that flexible response is an essential part of Alliance policy. Even with reductions in conventional weapons, I think that we will keep to that policy. That was confirmed at the recent summit.

Sir Antony Buck: Does my hon. Friend agree that the reasons for modernisation are precisely the same as those that actuated the Labour party to modernise our nuclear deterrent by the introduction of Chevaline? The only difference is that the Labour party did it without telling anybody and we do it openly.

Mr. Hamilton: That is absolutely right. That was a period when the Labour party took a more responsible attitude towards defence. It is a great pity that the Labour party's new review has not taken us forward one jot.

Mr. O'Neill: Does the Minister of State agree that one reason advanced—usually the main one—for the existence of short-range nuclear forces is the disparity between the conventional forces of the Warsaw pact and NATO? If the CFE—conventional forces in Europe—talks reduce those forces to parity and then below, what justification will there be to retain short-range nuclear forces?

Mr. Hamilton: As the hon. Gentleman well knows, the justification for flexible response is that the enemy should not at any time contemplate attack because of the series of responses that might result. That is the whole basis of NATO policy. It was confirmed recently at the summit, and Labour Members are the only people who are out of step on this matter.

European Fighter Aircraft

Mr. Dykes: To ask the Secretary of State for Defence if he will make a statement on the latest stage reached in the contracts appraisal for the radar and receiver equipment planned for the EFA development.

Mr. Fatchett: To ask the Secretary of State for Defence what progress has been made in respect of the radar system for the European fighter aircraft.

Mr. Sainsbury: Bids have been received from two consortia for the development contract for the EFA radar. These are currently being actively considered by the four nations participating in the EFA programme, and a final decision will be made as soon as possible.

Mr. Dykes: I thank my hon. Friend for that answer. He will understand that I obviously support the GEC-Marconi combination—

Mr. O'Neill: Why?

Mr. Dykes: Because it is partly in my constituency. It is therefore understandable.
Before the Opposition spokesman gets overexcited, will my hon. Friend say whether the delays, which are already excessive, are due more to technical complications or to the price that is being offered? Will there be an early end to this delay? It has gone on long enough and there are considerable anxieties among defence contractors.

Mr. Sainsbury: I appreciate what my hon. Friend says about delay. The decision is taking longer than I would have liked. My hon. Friend will appreciate that the choice is difficult. It involves a key element in a very important project. It is most important that all matters, including important technical and cost and contractual aspects, are fully covered and agreed by the four participating nations.

Mr. Jack: My hon. Friend may be aware that the delays on the radar decision have given rise to some reports from West Germany that the whole nature of the EFA project may be reconsidered. Can he assure the many thousands of aircraft workers in my constituency, whose futures are tied up in this project, that the Government are 100 per cent. committed to it, and will do all that they can to maintain the commitment of the other partner nations to its early conclusion?

Mr. Sainsbury: I assure my hon. Friend that we and all the other participating nations are committed to the project. In 1986, all four nations signed a general memorandum of understanding, and a further memorandum on the development of the aircraft was signed as recently as November last year. That demonstrates the participating nations' commitment to the project.

Mr. Rogers: The Minister's answer that a decision will be made as soon as possible, but not as soon as he would like, does not comfort us at all. He said on 10 November 1987 that he expected a decision to be made in "early spring next year"—early 1988. It is now summer 1989. What has happened? Is this yet another example of the Government's mismanagement of the procurement industry? Will we now have another highly sophisticated, extremely expensive aeroplane flying round with cement in its nose?

Mr. Sainsbury: The hon. Gentleman has a vivid imagination when it comes to identifying what he regards as mistaken procurement decisions. I hope that he understands the importance of EFA radar and the complexity of very high-performance radar. As I said, the decision has taken longer than I hoped, but he will agree that it is very important that we take the right decision in the right way.

Mr. Wilkinson: Will my hon. Friend remind our German partners that unless a decision is reached, preferably unanimously, as soon as possible, the export potential of this aeroplane could be greatly prejudiced? It is in their long-term commercial and operational interests to fall into line with the Italian, Spanish and British partners on the project.

Mr. Sainsbury: All the participating nations will be conscious of the points that my hon. Friend rightly makes. This important aircraft has export potential, although that is a long way down the line. The most important thing is to reach the right decision on the radar and to continue the project in the right way.

Malaysia (Arms Sales)

Ms. Lestor: To ask the Secretary of State for Defence what are the current agreements and what recent changes have been made to them, between his Department and Malaysia about arms sales.

Mr. Sainsbury: The current arrangements are between Her Majesty's Government and the Government of Malaysia and are encompassed in a memorandum of understanding concerning defence equipment procurement and related services and a memorandum of understanding and a sales agreement relating to the sale of six ex-Royal Navy wasp helicopters and associated equipment. There have been no changes to any of those documents since they were signed.

Ms. Lestor: Is the Minister aware that I had to have the mental gymnastic ability of Houdini to find out from his Department, the Prime Minister and the Overseas Development Administration whether aid was ever discussed in the context of arms sales? That was always denied, yet on Friday 7 July I received a reply saying that Her Majesty's Government had written to the Malaysian Finance Minister on 28 June saying that it would be unacceptable to link aid with arms. If they were never linked, why was it necessary to write such a letter? Why were all my questions given such evasive replies by various Departments? Why will not the Minister now publish all the correspondence relating to those deals?

Mr. Sainsbury: My recollection is that Mr. Houdini was an escape artiste. The hon. Lady may be trying to escape from her own imaginings about linkage. The explanation is merely that the Malaysian Government suggested that aid be considered and it was made clear to them that that was not acceptable. That has been made clear to the hon. Lady and to the House in the answers that she has received.

Mr. Gerald Howarth: Does my hon. Friend accept that Her Majesty's Government deserve the congratulations not only of the House but of the country on having secured a contract that promises to guarantee jobs at home and to enhance Britain's standing and influence in an important part of the world? I hope that my hon. Friend will not listen to the miserable carping of Opposition Members which serves only to destroy our defence industries, not to build them up as he has done?

Mr. Sainsbury: I am grateful to my hon. Friend for his comments. It is not unexpected that Commonwealth countries such as Malaysia should be recipients of aid and,


I am happy to say, that they should purchase defence equipment from the United Kingdom. As my hon. Friend says, defence exports provide many jobs—more than 100,000—throughout Britain. The attitude of the Opposition and the hon. Member for Eccles (Miss Lestor) would threaten all those jobs.

Navtex

Mr. Barry Field: To ask the Secretary of State for Defence, when the Hydrographer's department will be able to promulgate notices to mariners (a) electronically and (b) direct on Navtex; when shipping forecasts will be broadcast direct by Bracknell on Navtex; and how much British Telecom charges for operating the Navtex frequency.

Mr. Sainsbury: The Hydrographer currently broadcasts information, which may subsequently be included in the printed Admiralty notice to mariners, on Navtex. Neither the Meteorological Office nor the Hydrographer has any plans at present to make Navtex broadcasts direct from Bracknell or Taunton respectively. Weather forecasts from the Meteorological Office are passed to British Telecom International for inclusion in Navtex broadcasts.
I understand that the Department of Transport is charged by British Telecom for Navtex broadcasts, and that currently it costs 3·9p per word for each broadcast.

Mr. Field: Is my hon. Friend aware of the considerable commercial potential of electronically available notices to mariners? Is it not extraordinary that, having passed information to British Telecom the Hydrographer's department then has to receive the Navtex signal to make sure that the information has been properly broadcast? In this day and age could not arrangements be made for the Hydrographer's department to broadcast the information direct?

Mr. Sainsbury: We have considered my hon. Friend's suggestion. It would be technically feasible to make such broadcasts direct, but it would not be more efficient or cost effective than the current arrangements whereby British Telecom is paid for promulgating those broadcasts, which are extremely valuable to mariners.

Mr. Nicholas Brown: Does the Minister agree that one ship that might take advantage of the notices promulgated by the Hydrographer's department would be HMS Southampton when it has been repaired? When does he intend to announce the contract for repairing HMS Southampton?

Mr. Sainsbury: I congratulate the hon. Gentleman on his ingenuity, but I have to tell him that Her Majesty's warships do not use Navtex.

Nuclear Non-proliferation

Mr. Heffer: To ask the Secretary of State for Defence what is his assessment of the implications for British defence policy of the current number of countries accepting the principle and practice of nuclear non-proliferation.

Mr. Archie Hamilton: As one of the depository powers of the nuclear non-proliferation treaty, the United Kingdom is actively committed to preventing the spread of

nuclear weapons and welcomes the growing number of accessions to the treaty. This is entirely consistent with British defence policy.

Mr. Heffer: As 140 countries support the non-proliferation treaty, and as the Minister says that the Government actively oppose the spread of nuclear weapons, will he explain why the Government are not reacting positively to the initiatives of the Soviet Union? Do they really believe in the non-proliferation treaty? Is he aware that the Government's attitude makes life difficult for Pakistan and other Asian countries which are equally opposed to the spread of nuclear weapons, because it undermines their position?

Mr. Hamilton: The hon. Gentleman is letting off those nations that want to have nuclear weapons and refuse to sign the non-proliferation treaty. As he knows, when the treaty was drawn up, it recognised two categories of states —nuclear weapon states and non-nuclear weapon states. We were in the first category.

Mr. Hill: My hon. Friend will have read the full text of Mr. Mikhail Gorbachev's speech in Strasbourg last Thursday in which he made particular mention of further concessions. Will he give us some information about how his Department will make progress on that? Are we being bamboozled by one of the biggest propaganda exercises that the world has ever known?

Mr. Hamilton: My hon. Friend is right to suggest that we must beware pre-emptive disarmament among our allies. It is right to respond to the initiatives of President Gorbachev, but we must realise that he is taking them and making gestures from a position of enormous numerical superiority, so he can afford to do so.

Mr. Cartwright: As the Government now argue that short-range nuclear weapons will still be needed in Europe even if the present conventional imbalance is negotiated away, on the ground that only nuclear weapons can deter a conventional attack, how can they object to existing non-nuclear states following the logic of his argument and seeking to obtain nuclear weapons?

Mr. Hamilton: The spread of nuclear weapons throughout the world is an extremely unhealthy development, and if the hon. Gentleman does not see that, I despair of him.

Mr. Baldry: To refer back to the remarks of the hon. Member for Liverpool, Walton (Mr. Heifer), is it not disturbing that when complex East-West negotiations are continuing so many Opposition Members either wittingly or unwittingly appear to be auxiliaries to the Soviet negotiating position? Does that not demonstrate that Britain's defences will never be secure in their hands?

Mr. Hamilton: Yes, but I do not think that anything has changed. Some Opposition Members have seemed to speak up for the Soviet Union on every possible occasion for as long as I have been in the House.

Mr. Heffer: On a point of order, Mr. Speaker. The Minister suggested that some of us speak up for the Soviet Union on every possible occasion. I object to that. My record in this House of opposing the Soviet Union when it went into Afghanistan and on other occasions is second to none. I do not want him or any other hon. Member to lie about us.

Mr. Speaker: Everyone recognises the hon. Gentleman's position as a highly honourable Member of the House.

Chemical and Biological Weapons

Ms. Abbott: To ask the Secretary of State for Defence what is his estimate of the United States stockpile of chemical and biological weapons (a) currently and (b) over the next five years.

Mr. Archie Hamilton: It would be inappropriate for me to comment in detail on the defence capabilities of an ally. However, the United States is a party to the 1972 biological weapons convention. This prohibits the development, production and stockpiling of biological weapons.

Ms. Abbott: Is it not the case that the Union of Soviet Socialist Republics has stated exactly what its stockpile is and that the United States of America is threatening to increase its stockpile of chemical weapons?

Mr. Hamilton: For a long time the Soviet Union would not say how big its stockpile was, and it was only the other day that it came out with the figure of 50,000 tonnes, which does not tie in with any of our estimates. We estimate that the stockpile is several times larger than that, but it is difficult for us to say with any exactitude, because a complex calculation is involved.
The United States produced no chemical weapons for 18 years, from 1969 to 1987, but that unilateral moratorium was not matched by the Soviet Union.

Sir Dudley Smith: An earlier supplementary question referred to Mr. Gorbachev's speech last week to the Council of Europe about chemical weapons. Is it not more important than ever that the Soviet Union's words should be matched by deeds?

Mr. Hamilton: Absolutely—and we are watching with interest to see whether the Soviets adhere to their commitment to get rid of their existing stocks of chemical weapons. There is not much sign of it at present.

Mr. Cohen: Has not the United States planned a large increase in its stock of binary chemical weapons? Is there a danger that other countries will say, "If the United States can do it, we can do it, too"? It is the proliferation argument all over again. Should not the Minister advise those countries to go for a global chemical weapons ban?

Mr. Hamilton: The hon. Gentleman is right, and that is exactly what we are doing: we are going for a global chemical weapons ban, which is what we all want to see. We must remember, however, that the United States went into the manufacture of binary chemical weapons because the Soviet Union refused to stop manufacturing chemical weapons. It continued to manufacture them throughout those 18 years and built up vast stocks, and eventually the United States felt that it could not stand by any longer.

Mr. Brazier: Will my hon. Friend confirm that the Soviet Union's stocks of chemical weapons are much larger than those of the West? The Soviet Union has 14 factories, compared with just one in America. Will he also confirm that the Soviet Union continues to refuse to allow an inspection by the West of its facility at Shikhany, notwithstanding the agreement that it made with us?
Finally, will my hon. Friend confirm that all the questions that Opposition Members have asked recently have related to our weapons, rather than to the much larger stocks held by the Soviet Union?

Mr. Hamilton: My hon. Friend is right. The Soviet stocks are very large and, as I said earlier, the Soviets admitted only recently to having any stocks of chemical weapons at all. It was very disappointing that they were unable to show us a large plant at Shikhany which we were sure was involved in the manufacture of chemical weapons; they said that it was a purely commercial organisation with no defence interest. That gives us some idea of their lack of straightforwardness on the issue.

Mr. Boyes: There is no doubt that the Americans are spending billions of dollars on chemical weapons and delivery systems. Nevertheless, President Bush is on record as saying that he wants to be remembered for ridding the world of chemical weapons; 75 senators have signed a note saying that they want the President to increase his efforts to cut world stockpiles; and last week a senior military man at NATO told me, as well as my hon. Friend the Member for Clackmannan (Mr. O'Neill) and other hon. Friends—we were discussing flexible response—that although nuclear weapons might be used first, in no circumstances would chemical weapons be used first.
In contrast, the Prime Minister is on record as saying that the security of NATO depends on the right mix of nuclear, conventional and chemical weapons for all circumstances. This Government and this Prime Minister are prepared to use the most obscene, horrendous and universally condemned weapons first, which demonstrates that once again they are out of step with both British public opinion and the opinions of our allies.

Mr. Hamilton: I am afraid that I do not quite understand the purpose of that question. Is the suggestion that my right hon. Friend said that we were prepared to use chemical weapons first? I do not see how that would be possible, as we have none.

Third Zero Option

Ms. Short: To ask the Secretary of State for Defence what representations he has received asking him to reconsider his attitude to the third zero.

Mr. Archie Hamilton: My right hon. Friend has received a number of representations from individuals and organisations regarding the role of short-range nuclear weapons in Europe. I am sure that the British people support the Alliance's recent rejection of the third zero.

Ms. Short: Has the Government's view changed? The Prime Minister told us that she could do business with Mr. Gorbachev, but it seems that today the Conservative party is rubbishing all the disarmament proposals that people all over the world are welcoming. In particular, surely the Minister knows that the people of Europe and the people of Britain are excited by the prospect of getting rid of short-range nuclear weapons in Europe—East and West. We all want disarmament; it is in all our interests. Why are the British Government standing in the way of progress which would benefit all the people of the world?

Mr. Hamilton: We are certainly not rubbishing the Soviet Union's initiatives. We welcome everything that is


taking place at the moment. We are involved, within the Alliance, in serious negotiations to reduce strategic, conventional and chemical weapons, and we are hopeful that there will be a fruitful result. However, we must be careful to maintain our guard during the negotiations and not to put ourselves at a renewed disadvantage compared with the Soviet Union.

Mr. Bill Walker: Does my hon. Friend agree that it would be nonsense if our aircraft did not have a stand-off capability when the Soviets already posses one? So long as they have their stand-off capability, surely we should have such a capability.

Mr. Hamilton: I agree absolutely. That is very important. We should always be able to match the Soviet capability and have systems as up to date as theirs. It is also important that we should adhere to the resolutions passed at the recent summit and ensure that we keep flexible response as part of NATO's strategy.

Mr. O'Neill: Does the Minister agree with the statement by President Bush last week, prior to his departure for Warsaw, that he is still confident that a conventional deal can be struck within the next six to nine months and that, following that, short-range nuclear forces should become the subject of discussion with a view to their removal, at least in part? Do the Government share President Bush's optimism or do they wish to act as the dogs in the manger and hold back the process?

Mr. Hamilton: There is no question of our being dogs in the manger. There are a great number of complicated negotiations to go through. Six to nine months is an ambitious programme, but I am not saying that it cannot be achieved.

Nuclear Deterrent

Mr. Sumberg: To ask the Secretary of State for Defence what recent representations he has received on the retention of Britain's independent nuclear deterrent.

Mr. Archie Hamilton: My right hon. Friend has received a number of representations from individuals. The British electorate has consistently endorsed NATO's policy of deterrence based on a mix of nuclear and conventional weapons and the maintenance of an independent British strategic deterrent.

Mr. Sumberg: If my hon. Friend receives any representations from members of the Labour party who are also members of the Campaign for Nuclear Disarmament, will he tell them and their leader that it is both illogical and ridiculous to maintain that they can be members of CND and yet support the British nuclear deterrent?

Mr. Hamilton: My hon. Friend is right. Belief in unilateral disarmament is clearly written into the rules of CND. Members of CND believe that we should get rid of our deterrent as soon as possible. That cannot be combined with belief in a British deterrent.

Mr. Litherland: Has the Minister honestly read the speech of President Gorbachev to the Council of Europe in Strasbourg last week? If and when he does, he must surely come to the conclusion that the real warmonger in Europe is the Prime Minister.

Mr. Hamilton: It is extraordinary for any hon. Member to make a remark like that when the Soviet Union has a totally undemocratic system in which scant regard is paid to individual rights. When one considers the disparities in terms of the armed forces on both sides, there is no doubt in my mind as to who is in a better position to fight a war.

Mr. Bowis: Does my hon. Friend agree that the British independent deterrent is necessary not just in relation to the Warsaw pact countries but in relation to those areas of the world where non-proliferation is not a term that is used, including countries such as Iran and Libya? Would it not be the height of folly to abandon our ability to deter attacks and assaults from such countries?

Mr. Hamilton: I could not agree more. There is a great risk that if we had a Labour Government we would get rid of our own independent deterrent, our nuclear weapons, and find ourselves being blackmailed by other countries that had such weapons.

AWACS Offset Agreement

Mr. Lofthouse: To ask the Secretary of State for Defence what progress has been made by his Department in monitoring the number of jobs involved in contracts placed under the AWACS offset agreement.

Mr. Sainsbury: The offset obligation between Boeing and the Ministry of Defence is financial and is measured in terms of the value and quality of contracts placed with the United Kingdom industry. However, we are now setting in hand monitoring of employment created by contracts declared in future reports. I am glad to confirm that the level of agreed contracts won by United Kingdom companies has now reached a total value of some $624 million. This is well on the way to the $1·5 billion which Boeing is contracted to spend in the United Kingdom.

Mr. Lofthouse: When the Government cancelled the Nimrod contract and bought AWACS from Boeing, did not Boeing promise 4,500 jobs in the first year in the United Kingdom, increasing to 8,000 jobs? Has the Minister any evidence that those jobs will be provided?

Mr. Sainsbury: I think that the allegation to which the hon. Gentleman refers is based on advertisements which Boeing placed in the national press before the contract was awarded. The memorandum of understanding is based on financial achievements. Bearing in mind that quality is also involved, those financial achievements will create jobs throughout the United Kingdom. I hope that the hon. Gentleman will welcome the fact that we have already achieved some 40 per cent. by value of the target, although only some 32 per cent. of the time for the entire programme to be fulfilled has elapsed. That is a great achievement and very satisfactory for British industry.

Mr. Hind: Does my hon. Friend agree that the announcement that he has just made vindicates the decision to buy Boeing AWACS, which was one of the most difficult decisions that the Ministry of Defence has ever had to make? Does he agree that offset deals could not be achieved in any purchase of overseas equipment by the Ministry of Defence if it followed the Labour party policy of stringently limiting the scale of arms sales by Britain and


thereby undermining the effectiveness of DESO, the Defence Export Services Organisation, which has been partly responsible for the offset deal?

Mr. Sainsbury: My hon. Friend is quite right. There is no doubt that the policies set out by the Labour party stringently to limit defence exports would certainly be damaging to the British defence industry and would make the achievement of offset agreements that much more difficult. I remind the House that all the contracts involve high technology and high-quality goods and therefore are particularly valuable to industry.

Mr. Rogers: If anyone is destroying the British defence industry it is the Minister with his incompetence and mismanagement. On 18 December 1986 the Secretary of State for Defence said:
Boeing is publicly committed to placing high-technology work with British companies and … job losses resulting from the cancellation of Nimrod would be equalled if not exceeded by job gains".—[Official Report, 18 December 1986; Vol. 107, c. 1353.]
Now, three years later, those targets have not been reached, whatever the Minister says. There is evidence of that in the Select Committee report. The jobs that have been created are low-technology jobs. How is it that France has such a good agreement for just four Boeing AWACS aircraft while we have such a lousy deal?

Mr. Sainsbury: The hon. Gentleman apparently spends more time reading old copies of Hansard than more up-to-date reports. If he studies the Select Committee report he will find that we are getting high-technology, good-quality awards in respect of the offset agreement. That is written into the agreement. We have already achieved some $624 million. I should have hoped that the hon. Gentleman would have the grace to recognise that reaching 40 per cent. of the target in 32 per cent. of the time was a worthwhile achievement, rather than trying to rubbish the performance of the British defence industry.

Mr. Soames: Is my hon. Friend aware that although British companies with particular expertise came forward very promptly for the AWACS contract, nevertheless Boeing had to go searching the highways and byways of British industry to find other companies to take part in the contract? Does my hon. Friend agree that it is a measure of the success of the transaction that so many British companies have taken part in it?

Mr. Sainsbury: It is a measure of success that the benefits of the offset deal are very widely spread throughout British industry, particularly the electronics and engineering industries. One of the follow-on benefits that is not covered in the agreement is that many of the firms with contracts in the offset agreement have obtained further contracts not within the offset agreement but much to the benefit of the companies and the work force.

Hospitals

Mr. David Marshall: To ask the Secretary of State for Defence what representations he has received about the under-utilisation of armed services hospitals.

The Parliamentary Under-Secretary of State for the Armed Forces (Mr. Michael Neubert): The utilisation of service hospitals was considered by the Select Committee on Public Accounts in its ninth report of the 1987–88

session. The Government replied in a Treasury minute in February 1989, Cm. 323. The Committee's 21st report of the 1988–89 Session, which also deals with service hospitals, was published on 22 June. It contains further observations which are now being considered.

Mr. Marshall: Will the Minister confirm that the Select Committee on Public Accounts criticised Halton, Wroughton and Haslar military hospitals for failing to agree to treat more National Health Service patients? Why is the Ministry of Defence still dragging its feet on the issue? Will the Minister act immediately to ensure that all military hospitals take more NHS patients instead of leaving so many empty beds?

Mr. Neubert: It may not be appreciated that the service hospitals already take 250,000 NHS patients. The scope for more is limited only by the willingness of local and regional health authorities to accept more contracts. I can report that since the consideration by the Select Committee on Public Accounts, RAF Wroughton has negotiated a contract with the Mid-Glamorgan and Crewe health authorities to take patients of theirs.

Mr. Madden: Have any expressions of interest in becoming self-governing trusts been received from armed services hospitals?

Mr. Neubert: That is, perhaps, pointing the way to the future. Who knows? I may be answering a question on that at a future Question Time.

Force Reductions

Mr. Galbraith: To ask the Secretary of State for Defence if he will make a statement about the defence implications of reductions in (a) conventional forces and (b) short-range nuclear forces.

Mr. Archie Hamilton: The greatest threat to stability and security in Europe remains the huge superiority that the Soviet Union and its Warsaw pact allies have in many types of conventional armaments. All the NATO allies are agreed that the elimination of those disparities in conventional forces is our highest arms control priority. The allies have recently confirmed that for the foreseeable future, there will continue to be a requirement for land, sea and air-based nuclear systems, including ground-based missiles, in Europe. Security and stability of Europe would be greatly enhanced if the Soviet Union were to eliminate its huge superiority in short-range nuclear missiles.

Mr. Galbraith: Does the Minister agree that it would make sense to have a lower level of arms all round? That being so, why can we not have simultaneous action on conventional and short-range nuclear forces? Is it not somewhat unreasonable for Britain to insist that we can have no deal which involves any cut in our forces in Germany or which puts British aircraft with nuclear capability on the negotiating table?

Mr. Hamilton: The reality is that NATO has already reduced its short-range systems by 35 per cent. since 1979, but, like all unilateral gestures, it has not got us very far.

Mr. Nicholas Bennett: Does my hon. Friend recall the words of only two months ago that the purpose of retaining the deterrent is not to use it or even threaten to use it, as enunciated by the hon. Member for Dagenham


(Mr. Gould) on 8 May? What sort of policy would that be for a Government who were attempting to have a nuclear deterrent?

Mr. Hamilton: My hon. Friend is right. A deterrent does not count as a deterrent unless there is a preparedness to use it. That is why I believe that the country will see through the Leader of the Opposition and will realise that the deterrent would not be worth keeping if he were in power.

Spanish Military

Mr. Dalyell: To ask the Secretary of State for Defence if he will make a statement on his latest discussions with the Spanish military authorities.

Mr. Archie Hamilton: My right hon. Friend the Secretary of State paid a most successful and interesting official visit to Spain on 19 and 20 June. He had wide-ranging and useful discussions with his Spanish colleague, Senor Serra, on Alliance and bilateral matters, and visited the naval base at Rota. The Ministers reaffirmed their desire that the close bilateral relationship which has grown up between the British and Spanish armed forces in recent years should continue to be developed.

Mr. Dalyell: Have Ministers any reason to disbelieve the Spanish authorities when they claim that the IRA team in Gibraltar had six members and not three?

Mr. Hamilton: I do not think that that was anything to do with the Spanish authorities. A statement was made by Inspector Rayo to Inspector Correa of the Gibraltar coroner's office on 8 August. It was signed by Rayo and witnessed by Correa. On 9 August, Rayo submitted a signed carbon copy of the statement to the Malaga judge and attested his signature. Correa attested his signature before the Malaga judge on 22 August. The copy plus attestations was passed to the British embassy in Madrid. That copy was not sworn and, therefore, of no greater validity. We must emphasise that there is only one statement, but there were two copies.

Trade Unions (Consultation)

Mr. Greg Knight: To ask the Secretary of State for Defence whether he has any plans to consult the Trades Union Congress or any individual trade union when reviewing Britain's policy.

Mr. Archie Hamilton: No, Sir.

Mr. Knight: Will my hon. Friend give the House an unequivocal assurance that, when he next reviews policy, he will bear in mind—and, indeed, make it the only consideration—the defence needs of Britain? Will he confirm that the Government will not place the freedom of the country at risk by pursuing a policy of negotiating over beer and sandwiches with trade union leaders whose idea of democracy appears to be based on the principle of one man, one million votes?

Mr. Hamilton: I do not think that the trade unions have anything to say about our defence policy. We shall certainly not take into account what the Transport and General Workers Union says, which is extremely dangerous and threatens the survival of this country.

Mr. Eastham: Would it not be useful if, in future, the Minister at least discussed with the TUC issues such as the selling of the royal ordnance factories, given that three factories were sold off at terrific loss to the taxpayer and hundreds of engineering jobs were lost as a result?

Mr. Hamilton: The hon. Gentleman says that the royal ordnance factories were sold off at great cost to the taxpayer. In fact, they were sold to the highest bidder. I do not know how else one can sell things.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mrs. Teresa Gorman: To ask the Prime Minister if she will list her official engagements for Tuesday 11 July.

The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today, including one with the Prime Minister of Canada, Mr. Mulroney.

Mrs. Gorman: Will my right hon. Friend join me in welcoming the agreement negotiated by the Minister for Overseas Development with the Brazilian Government under which we are to provide technical and scientific aid to Brazil to help it to preserve its rain forests? Will not this be a triumph—[Interruption.]

Mr. Speaker: Order.

The Prime Minister: Yes, Sir. The agreement that my right hon. Friend the Minister for Overseas Development signed is the first of its kind with Brazil to seek to preserve the tropical rain forest—the largest block of tropical rain forest in the world. It involves research projects in conjunction with us—with the Royal Geographical Society—on the sustainable development of the forest and on climatic change. As The Times said,
It was a triumph for—
[Interruption.]

Mr. Speaker: Order.

The Prime Minister: As The Times said,
It was a triumph for quiet diplomacy of the sort that will be needed … to protect the world environment.

Mr. Kinnock: Is the Prime Minister aware that she was absolutely right to say last December that energy efficiency is crucial in combating the greenhouse effect? So why, according to the Government's own figures, has expenditure on energy efficiency been cut by 15 per cent. since 1987 and is to be cut in half again by 1991? Is not that the record of a Government who talk green but act dirty?

The Prime Minister: No, Sir. The part of the energy efficiency budget that is being cut was the part heavily devoted to advertising. In fact, the energy efficiency record of this country is excellent. We use less energy now to produce 25 per cent. more goods than was the case in 1973. It is a very good record on energy efficiency.

Mr. Kinnock: If the Prime Minister is proud of her record and is seriously concerned about energy efficiency, which she says is crucial, will she overrule her Secretary of State for Energy and accept the Lords amendment to the


Electricity Bill which had all-party support and which will penalise suppliers if they fail to give proper attention to energy efficiency?

The Prime Minister: No, Sir. They will give proper attention to energy efficiency—and so will consumers, most of whom wish to use energy efficiently to keep down their bills. That is a very important incentive to energy efficiency.

Mr. Kinnock: Can the Prime Minister tell us in straightforward terms, and within the terms of the Electricity Bill, how she knows that private suppliers will take care of energy efficiency?

The Prime Minister: Usually when we privatise things, they have to be run very much more efficiently. [Interruption.] For example, when I first came to the Dispatch Box British Steel required £1 billion per year subsidy from the taxpayer. Now it is making £500 million per year profit. That is an excellent example of the greater efficiency of privatisation.

Sir Patrick McNair-Wilson: To ask the Prime Minister if she will list her official engagements for Tuesday 11 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Sir Patrick McNair-Wilson: When my right hon. Friend visits France in the next few days for the European economic summit, will she urge her colleagues to continue the sustained and steady policies that have produced growth for all countries in the Community? Will she further urge the summit to support her Government's policies, which are tackling the problems of the global environment?

The Prime Minister: Yes. I believe that it was the experience of the economic summit—particularly during its second cycle, which has just been completed—that sound economic policies have produced faster growth than we have ever had before, a higher standard of living, and a better standard of social services. We shall be looking very much at the economics of better environment. We notice that it is the countries which are more prosperous and have more growth that now have the resources to devote to better environmental conditions, unlike some of the Third world and some eastern European countries. We shall be paying great attention to that factor.

Mr. Ashdown: If the Government's policy on the environment is so good, how is it that the latest figures show that Britain's production of the primary greenhouse gas, carbon dioxide, is increasing at twice the world average rate? How will the Prime Minister explain that at the Paris summit next week while opposing further measures for energy conservation?

The Prime Minister: I think that the right hon. Gentleman must be referring to some figures that were compounded by the Oakridge laboratory in 1986. Our published figures do not agree with its comparison between 1986 and 1987. However, as the right hon. Gentleman has asked me about the fundamental carbon dioxide gas, from the figures published from the Oakridge laboratory, which we have not yet seen in detail, the Daily Telegraph gave these figures:

Per capita figures from the Oakridge laboratory for the production of fossil fuels in tonnes of carbon per man or woman"—
the higher the figure, the worse it is—
United States five tonnes of carbon dioxide for each person, Czechoslovakia 4·2, Bulgaria 3·6, Soviet Union 3·6, West Germany 3·06, United Kingdom 2·9.

Mr. Malins: To ask the Prime Minister if she will list her official engagements for Tuesday 11 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Malins: Is my right hon. Friend aware that if Pakistan were readmitted to the Commonwealth it would be warmly welcomed throughout the country, not least in my constituency of Croydon, North-West, where many constituents are from a Pakistani background?

The Prime Minister: Yes, I believe that it will come about at the next Commonwealth conference, and it will be very warmly welcomed. I am glad that we are among the first to suggest and to approve that Pakistan return to the Commonwealth. Of course, it could not be done without the co-operation of India, through Mr. Rajiv Gandhi. We had a successful visit here last week by the Prime Minister of Pakistan, Benazir Bhutto. We were very pleased that we were able to help her with some aid for rural development and extra help for the Afghan refugees, which brings our help for the Afghan refugees up to £15 million in the past 18 months.

Mr. Fatchett: Now that the Government have rolled over to the brewers, will the Prime Minister advise the British Medical Association how much it should invest in the Tory party before the views of the doctors will be listened to?

The Prime Minister: I should have thought that an Opposition party with massive investment from the trade unions was not well equipped to ask that question. With regard to the decisions of my right hon. and noble Friend the Secretary of State for Trade and Industry, within two years all brewers with more than 2,000 pubs will have to have untied 50 per cent. of the number in excess of 2,000. That will add 11,000 free houses, which is equivalent to serving some 3 million customers a year. As the House knows, tenants will be able to purchase, free of ties, soft drinks, non-alcoholic ciders, wines and spirits. In addition, many of the other recommendations of the Monopolies and Mergers Commission were implemented in full.

Mr. Watts: To ask the Prime Minister if she will list her official engagements for Tuesday 11 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Watts: When my right hon. Friend crosses the England channel to visit Paris later this week, will she recall that last year we celebrated the tercentenary of our own glorious revolution which, as revolutions go, was virtually bloodless—certainly much less so than the reign of terror being celebrated in Paris?

The Prime Minister: I hope that in 1993 I shall be able to go across by the Channel tunnel as Prime Minister—[Interruption.] Yes, we managed our revolutions much more quietly in this country in 1688 and 1689 when Parliament took over the authority for the country from


the monarch. Our revolutions have certainly been quieter. Our revolution during the past 10 years—a revolution of high living standards and high social services—has also been managed quietly and very well.

Mr. Ieuan Wyn Jones: The Prime Minister will be aware of the intense speculation in Wales about the future of the Welsh Development Agency. Will she assure the House that the Government have no intention whatever of privatising the Welsh Development Agency either as a whole or in part?

The Prime Minister: The Welsh Development Agency will continue the most excellent work that it has carried out under both Secretaries of State for Wales in this Conservative Government. It will continue to attract a fantastic amount of inward investment to Wales under the Tory Government.

Mr. Charles Wardle: Does my right hon. Friend accept that if there is one thing worse than the mindless arrogance of unions which bully the public before they negotiate with management, it is the supine indifference of Opposition Members to the damage done by strikes—[Interruption.]

Mr. Speaker: Order. The hon. Gentleman knows better than that. He must ask a question within the Prime Minister's responsibility.

Mr. Wardle: Does my right hon. Friend agree that if there is one worse danger than that, it is the danger of inflationary pay demands which threaten competitiveness and put jobs at risk?

The Prime Minister: Let us hope that the negotiations now taking place will result in a successful conclusion so that British Rail can work fully again, serving both the public and freight, and justify the great investment that this country has put into the railways, especially in the past two or three years, including the great investment in electrification. We have now the greatest investment since changing from steam to the modern railway.

Mr. Andrew F. Bennett: To ask the Prime Minister if she will list her official engagements for Tuesday 11 July.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Bennett: Given the welcome reduction in tension between East and West, and the reduction in regional conflict, does the Prime Minister agree that the potential for arms sales has reduced in the world? What initiatives is she taking to encourage British industry involved in the arms trade to find peaceful alternative products?

The Prime Minister: Of course we welcome the reduction in tension between East and West—we were among the first to do so—but that does not mean that the reductions in arms now being negotiated will come about quickly. For several years the Soviet Union will have a great superiority over us in conventional, nuclear and chemical weapons. The only safe course for all who believe in freedom and justice is to ensure that we, with NATO, have a proper and full defence.
The Soviet Union is not reducing its arms sales capability in any way. It is increasing its arms sales to the middle east.

Mr. Stern: Will my right hon. Friend take time this afternoon to condemn the fact that physically and mentally handicapped people are being deprived of essential services as an inevitable result of the callous withdrawal of labour by the National and Local Government Officers Association?

The Prime Minister: Yes, I most certainly condemn it. I noticed that it was reported this morning that some nurseries and other services might not be running today. Once again, that is the fault of some people of the extreme Left wing in the trade unions who never think of serving the public or of their duty to the public. I am happy to say, however, that many people in NALGO went to work as usual to carry out their duties in the best possible way and in the best possible traditions of local government.

Several Hon. Members: rose—

Mr. Speaker: I apologise for not being able to call the hon. Member for Burnley (Mr. Pike)—I will seek to make it up to him.

Anthrax (Clwyd)

Mr. Barry Jones: (by private notice): To ask the Secretary of State for Wales if he will make a statement on the outbreak of anthrax in Clwyd.

The Minister of State, Welsh Office (Mr. Wyn Roberts): An outbreak of anthrax has occurred on a pig farm near Wrexham which has a stock of about 4,750 animals. The disease was first confirmed in a pig which died on 19 April. Since then the outbreak has continued, with the latest suspect dying on 6 July. To date, anthrax has been confirmed in 17 animals.
Under the terms of the Anthrax Order 1938 statutory responsibility for confirming the disease rests with the state veterinary service. Clwyd county council is responsible for the destruction of carcasses and the cleansing and disinfection of the premises. Disposal of carcasses and cleansing and disinfection is sufficient to curtail any outbreak. Despite these measures and antibiotic treatment of the animals, the outbreak continues. The normal course of action would be to vaccinate. A new batch of vaccine is being prepared at the central veterinary laboratories.
The continuing outbreak means that slurry must be considered to be infected. Under the Anthrax Order, the local authority is required to disinfect or destroy it. Disinfection requires high concentrations of formalin, which poses health and safety problems. Various disposal options are being considered. To date, no satisfactory disposal site has been identified.
Farm personnel, slaughtermen and others, who come into contact with the pigs, have been advised to be vaccinated. Precautions are being taken to prevent affected pigs entering the food chain, through inspection by veterinary officers on farms and prior to slaughter.
I can assure the hon. Gentleman that my Department and the state veterinary service will continue to give the fullest support to the efforts to curtail this outbreak of anthrax.

Mr. Jones: I thank the Minister for his reply. Does he know that on 28 June the community physician of Clwyd health authority wrote that she was greatly concerned about the possibility of anthrax infection being transmitted to humans from the livestock at Singrett farm? She said that she was worried for the slaughtermen and the meat inspectors. She was also worried about the hazard to the general public from infected meat, as anthrax was "very persistent". She went on:
I consider that the practice of allowing animals to leave the premises even following veterinary examination is unacceptable in the present circumstances and request that the movement of animals out of the farm should cease under powers granted in the Anthrax Order 1938 until the animal outbreak is brought under control.
I ask the Minister to concede the point made by the community physician.
Does the Minister know that on 15 June, the senior lecturer in farm animal medicine at Liverpool university, Dr. Walton, wrote that he was appalled that a notifiable disease—that is zoonotic as well—could be dealt with in such a low-key manner. He further asked in his letter:
Is this farmer to continue to medicate his whole herd with the very real risks of tissue residues at slaughter?
Has the Minister done his homework on tissue residues and the human food chain? A housing estate is 15 yd from

the garden of the farm. Farmer Geoffrey Priestley suffers a personal nightmare. I want my constituent, Mr. Priestley, to be helped by the Government. He is a good and clean farmer and even in the foot and mouth crisis he had a clean bill of health. He has been well supported by Gatehouse veterinary hospital at Rossett. There are approximately 4,500 pigs. Mr. Priestley rents 121 acres. Has the Minister discovered the source of the outbreak? I remind the Minister that nine sows have been infected and have survived, and that in the judgment of professionals the contamination must be astronomical. Many sows must be carriers. How does farmer Priestley stay in business and avoid bankruptcy? How will the Minister act decisively to avoid a potential major health hazard?
I remind the Minister that 250,000 gallons of slurry now fill three temporary tanks and must be disposed of. The slurry becomes toxic waste when treated with more than 1 per cent. of formaldehyde. Where will farmer Priestley dispose of that toxic waste? I want the Welsh Office to pay the £30,000 that it will cost to dispose of that slurry. Farmer Priestley cannot afford it.
Next, I want the Welsh Office to implement destocking—

Mr. Speaker: Order. I am sorry to interrupt a Front-Bench spokesman, but this is a private notice question and a question is not a statement.

Mr. Jones: It is a matter of great importance to my constituent. I feel that I should put on record his real worries, because at this time he has no other redress.
I was about to say that I want the Welsh Office to implement destocking, clean up and to give Mr. Priestley compensation. Why should Mr. Priestley be ruined where a notifiable disease is concerned?
Does the Minister know that on 2 July, a highly qualified veterinary surgeon from the hospital told the chief veterinary officer that he felt that the situation had now got out of control? What is the risk of the spread of the disease from manure from the infected pens? The Minister must know that a warm environment encourages the organism to sporulate.
The Minister in his statement appears to have passed the buck. He has fumbled and he has fudged. He and his right hon. Friend have been secretive and laggardly. My constituents face a potential grave health hazard and Mr. Priestley needs a fair deal. I ask the Welsh Office to act as urgently as it might. Will the Minister accept responsibility and will he give leadership? So far there has been none.

Mr. Roberts: I am sorry that the hon. Gentleman has taken a somewhat alarmist line, but I shall deal with some of the points that he raised. The origin of the outbreak has not been identified, despite extensive investigations by veterinary officers. All kinds of investigations were undertaken into the history of the disease on the farm and into the sources of food—the most common cause of infection. Manure, dust, and other environmental samples were also cultured. Again, the results were negative. Those investigations are, of course, continuing.
As to the risk to the public, I am aware of the views of the community health physician, who has advised that people who, in the course of their business, came into contact with the pigs should be vaccinated. Restrictions on the premises prohibit the movement of pigs and of any potentially infected material, except under licence. All pigs sent to slaughter are inspected by our veterinary officers at


the farm and again on their arrival at the abattoir. Animals who die from anthrax are cremated by the local authority, and subsequently their surroundings are cleansed and disinfected. Treatment with antibiotics is being undertaken, and an emergency batch of vaccine is being produced at the Weybridge laboratories.
The disposal and disinfection of the slurry is the responsibility of the local authority, but the disposal of the remaining waste is, claims the local authority, the responsibility of the owner, Mr. Priestley. Places where the slurry may be disposed of are still being investigated, and it is hoped to begin disposal in the very near future.
There is no compensation mechanism in respect of anthrax, because, while it is a notifiable disease, its nature is such that it is not highly infectious or transmittable animal to animal—[HON. MEMBERS: "Oh!"] If lion. Members doubt that, they have only to compare the total number of pigs that have died since 19 April with the very large intensive unit of 4,750 pigs.

Several Hon. Members: rose—

Mr. Speaker: Order. I remind the House that this is a private notice question, which is an extension of Question Time, I can allow questions to continue for only a further four minutes.

Sir Anthony Meyer: My hon. Friend is of course aware of the seriousness of the matter, but the public will rightly deplore any attempt to frighten them or to exploit the situation for political purposes. Is my hon. Friend aware that while my right hon. and hon. Friends are confident that he will be careful to watch over the situation, we expect him to exercise the utmost vigilance?

Mr. Roberts: I am grateful to my hon. Friend for his remarks, which confirm my own view that there is no need to be alarmist, and assure him that we shall do everything possible to curtail the current outbreak and to deal with the ensuing problem of the slurry.

Mr. Geraint Howells: Over the years there have been many outbreaks of anthrax in Wales, and my experience is that the Department's officials have always done an excellent job to help all concerned. I am sure that the Minister will give the people of Wales, and of Clwyd in particular, his assurance that his officials will do their utmost to safeguard everyone's interests.

Mr. Roberts: The hon. Gentleman is right in saying that. There have been seven anthrax outbreaks in Wales since 1983. They were all in cattle, whereas the latest outbreak is in pigs. I agree with the hon. Gentleman that the state veterinary service does a very good job on such occasions. By imposing restrictions on the movement of animals, and by inspecting animals at the farm and prior to slaughter, the service is safeguarding both the public and the food chain. We shall continue to seek a resolution to the remaining problems in conjunction with the local authority, which of course has a significant role to play.

Dr. John Marek: Are there enough scientific civil servants to test immediately if an outbreak is suspected? Can the hon. Gentleman assure us that, if an outbreak is confirmed, there are sufficient scientific civil servants to monitor and advise? If the outbreak is traced back to food, will the hon. Gentleman get the animal feed industry into a fit shape to provide proper feed for animals so that the public can be assured of the quality of the food that they eat?

Mr. Roberts: It would be wrong for us to anticipate the source of the outbreak when all the investigations that have been carried out so far have failed to reveal it. The hon. Gentleman is right to say that the source is frequently the food given to the animals. If that source is discovered, of course we shall take appropriate action. I assure the hon. Gentleman that there are adequate numbers of veterinary staff to deal with this kind of emergency.

Mr. Jerry Wiggin: Does my hon. Friend agree that part of his problem comes from the fact that anthrax, although a notifiable disease, is not one for which his Department can pay compensation for compulsory slaughter? Will he urge my right hon. Friend the Minister of Agriculture, Fisheries and Food to review thoroughly the categories of disease that should qualify for compensation, because this probably should never have arisen?

Mr. Roberts: I am not sure that the problem that we face necessarily has a great deal to do with the absence of compensation arrangements. After all, only 17 pigs out of a herd of 4,750 have died.

Mr. Ron Davies: rose—

Mr. Speaker: Order. We must move on to the statement.

Scottish New Towns

The Minister of State, Scottish Office (Mr. Ian Lang): With permission, Mr. Speaker, I should like to make a statement about the Government's decisions on the future of the Scottish new towns. We are publishing today a White Paper, "The Way Ahead", which sets out our decisions in more detail and builds on the earlier consultation document "Maintaining the Momentum".
We welcomed the substantial response to the consultation document, although it meant that the consultation process itself was extended. We are well aware of the key role played by the five new towns in achieving economic success for Scotland and it is for that reason that, following a major review, we have taken a measured and distinctively Scottish approach to their future.
While recognising—few have questioned it—that the time has now been reached to begin an orderly progress towards wind-up, our central purpose is to ensure the continuing economic vitality the towns have achieved. We acknowledge their importance to Scotland's international industrial image. The achievements of the new towns have been outstanding and reflect the commitment and dedication of the boards of the development corporations and of their staffs. I gladly pay tribute to them.
The towns' recent remarkable progress in creating jobs and prosperity has accelerated their growth to maturity. In 1988 I asked the development corporations to determine their key objectives for the next five years, and identify the major remaining development tasks necessary to achieve physical maturity. The Government broadly endorse the resulting development profiles and I know that the corporation staff are anxious to press ahead with these programmes. I can assure them of our support for the work that remains to be done to secure the remaining development of the towns.
Against that background, we have decided that wind-up will begin for East Kilbride and Glenrothes in 1991 and be completed in 1994. Cumbernauld will begin wind-up in 1993, Livingston in 1995 and Irvine in 1996. I believe that that timetable sets a sensible pace, based on the corporations' own appraisals of what remains to be done, but our legislative proposals will afford some flexibility, again reflecting our aim to implement wind-up in such a way as to take account of each individual town's circumstances.
In seeking to maintain the economic momentum and meet the ends of enterprise after wind-up, the Government considered a range of options. We have decided that the most effective way will be through the establishment in each new town area of a local development company. This will be a private sector company formed to own, manage and develop the residual industrial and commercial assets of the former development corporations. In addition, the local development company will fulfil, for a limited number of years, certain public sector functions in its area, under contract to the successor body to the Scottish Development Agency. The kind of functions that we envisage include the promotion of the area, the provision of premises and support for small business and, especially, for inward investment. Local development companies of this kind will, I believe, achieve our economic objectives in

an effective and dynamic way. In considering their formation, we shall be willing to give full consideration to management buy-out proposals.
The White Paper details our proposals for the future of community assets, such as public open spaces, halls and local sports facilities. For those, we propose a diverse solution including possible disposal to local charitable, religious or community organisations or sports clubs. The private sector and local district councils may also have a role to play.
On planning, the White Paper makes it clear that the planning system that presently operates in Glenrothes new town, which does not have a Special Development Order, will progressively apply in the other four towns as the wind-up process proceeds. The Special Development Orders will be revoked at the time of dissolution, by which time we envisage that much of the development of new town areas will be complete.
The White Paper sets out arrangements for the reconstruction of Scottish new town finances, following the financial management survey of 1986 and a thorough study by consultants on the necessary amount of debt write-off that forms part of that wider reconstruction. The approach involved is similar to that adopted for the reconstruction of the English new towns' debt in 1986, which was authorised by the New Towns and Urban Development Corporation Act 1985.
Much of the local interest in our proposals centres, understandably, on housing. I confirm our earlier commitment that, until wind-up, each individual new town tenant will have the right to remain the tenant of a development corporation. As dissolution nears, however, choices will have to be made. The Government see two distinct periods here. In the first, running to wind-up, the White Paper makes the corporations' priorities clear. The resounding success of our sales policies and the encouragement of private sector housebuilding will see home ownership this year rise to more than 50 per cent. in the five towns as a whole, compared with only 8 per cent. a decade ago. That is an outstanding achievement. We are equally concerned to see more variety and choice in the rented sector through housing associations and co-operatives. The development corporations have identified a number of locations suitable for the possible establishment of community-based housing initiatives. We shall encourage tenants associations to consider setting up locally based housing associations or co-operatives, where they will be able to participate in the management of their homes and shape the sort of neighbourhood in which they live.
A survey commissioned by the Government of tenants' attitudes in four of the new towns revealed considerable uncertainty among corporation tenants about their future wishes, as well as a lack of awareness of the full range of rented housing options available. Extensive local consultation is needed and, as part of an information programme for tenants, they will receive in the autumn a detailed information leaflet on the options open to them. I am placing a summary of the tenants' survey findings in the Library today, and the full results will be published later in the summer.
At wind-up, when stage two is reached, the option of a partial transfer to district councils is not ruled out. The alternatives, which also include housing associations, co-operatives, private and other landlords, will each be considered on the basis of their potential contribution to


meeting both housing need and the Government's twin objectives of increasing home ownership and providing a wide choice of tenure for those who wish to continue to rent. The present pace of house sales, the new diversification and the rents-to-mortgages initiatives, and the contribution being made by private sector housebuilders are certain to produce a very different housing scene in four years time. The tenants remaining with the development corporation at the time of their dissolution will be transferred to Scottish Homes.
For up to 40 years, Scotland's new towns have grown and matured, providing an attractive environment for their residents and an excellent location for industry, both indigenous and from overseas. The time to prepare for their wind-up, envisaged at the outset, has now arrived. The Government are confident that, with the proposals in our White Paper which I have outlined today, Scotland and the towns themselves will continue to enjoy the import ant benefits that the success of our new towns has afforded. It remains our purpose to maintain the momentum.

Mr. John Maxton: If the Government are
well aware of the key role played by the five new towns in achieving economic success for Scotland
why are they so intent on destroying that very success with such half-baked and ideological schemes?
Is the Minister aware that there will be considerable anger in Scotland and especially in the new towns at the way in which that success is being jeopardised by the Government because of what appears to be a purely ideological hatred of public bodies and a pathological fear of democratically elected bodies in Scotland?
How can the Minister justify the cavalier dismissal of local authorities that appears in the document and the absolute non-appearance of local authorities in any future that the Government have in mind for the new towns?
We accept that the new town corporations must cease to exist once they have completed their task, but is not the three-year wind-up period ridiculously short and will it not create enormous difficulties for all who live and work in the towns?
Are not the industrial plans, in particular, a massive rip-off of public assets in the new towns? Will the Minister tell the House today exactly what those assets are worth, what they consist of and what, if anything, the new companies that he is establishing will have to pay for them? Can they possibly do the job that the new town corporations, often together with the SDA, have done in the past?
What business men will come forward to run those companies—[HON. MEMBERS: "Mr. Bill Hughes."]—unless they are being offered substantial rewards? I am sure that that will be true in the case of Mr. Hughes.
Is not one of the attractions of the new towns their open spaces and amenity facilities, including sports facilities? If the planning of those facilities and their use by all in the community is to be maintained, would it not make infinitely more sense to hand them over to the democratically elected local authorities, who know the community's needs, instead of selling them piecemeal to private companies or giving them away to scouts, churches and so on?
Will the Minister give us a little more detail today of the survey carried out of tenants' wishes for future tenure?

Like the survey carried out by the same company, using the same methods, for East Kilbride district council, does it not show that on wind-up the vast majority of tenants —up to 90 per cent.—want to be transferred to the local authority, not to any other form of landlord?
Why does the Minister say that he will place the figures in the Library? Is he afraid to give them to the House today? Will he give us a guarantee today that the wishes of each tenant will be fully respected and that all tenants who wish to transfer to the local authority will be allowed to do so? If not, the Government's case for choice goes out of the window.
Does the Minister recognise that his decision to transfer all remaining tenants to Scottish Homes on wind-up means transferring them to private landlords, because Scottish Homes will cease to be a public landlord in the near future?
Will not this piecemeal and disorganised approach to winding up Scottish new towns make it difficult to sustain the planned growth and development that has been their unique contribution to Scottish life, thus damaging their future and Scotland's economic future?

Mr. Lang: The hon. Gentleman asked why we are proceeding with the wind-up of the new towns. He will know that their ultimate wind-up was envisaged at the outset in the legislation that established them. It is plain that East Kilbride and Glenrothes are now close to maturity and that, over the next few years, the other new towns will also be close to maturity. Once the development of their areas has been largely completed, it would be wrong for them to continue to enjoy special privileges not enjoyed by the rest of Scotland's residents, and special funding arrangements which have accumulated substantial borrowings from the national loans fund over the years. We are not seeking to destroy success, but to ensure that the great success achieved by the new towns is sustained after the wind-up. That is what our proposals envisage.
The hon. Gentleman suggested that three years was too short for the wind-up process, but I disagree. Three years will he adequate to complete the wind-up process, particularly when one bears in mind that in the case of the first two new towns it will not start until 1991 and, in the case of the others, until some years later.
There is no question of a rip-off in the disposal of the assets. The corporations will continue to dispose of some of their assets—and, indeed, will be able to fund further developments with the proceeds—but when the local development companies are set up there will be no question of the assets' being handed to them. A price will be paid that will reflect their value at the time, and the proceeds will be for the benefit of the Exchequer.
The hon. Gentleman asked who would come forward to bid. There are a number of possibilities. An existing company may make a bid, a new private company may be established or there may be a management buy-out frame. As I said in my statement, that might have considerable advantages.
We certainly do not rule out the transfer of community assets to local authorities: it is possible that a number will be so transferred, and, if necessary, it may be possible to consider an appropriate endowment to ensure that authorities do not thereby incur excessive losses. I consider it right, however, to give voluntary bodies such as charitable organisations, sports clubs and religious


organisations—and, possibly, some of the industrial residents of the new towns—the opportunity to become more closely involved with the environment in which they live. Some will, I believe, wish to take advantage of the opportunity to buy the assets that they have enjoyed over the years.
The hon. Gentleman asked for more details of the housing survey carried out by Market Research, Scotland, and I am happy to give him some figures. It is interesting to note that, if invited to make a choice now, more than two thirds of those surveyed would not exercise it—and would therefore be content to remain with the development corporation—while fewer than 20 per cent. would elect to go to the district council. If obliged to choose now, 58 per cent. would choose to go to the district council; but they are not obliged to choose now. If they had to choose at the time of the wind-up, fewer than half would choose to go to the district council. The hon. Gentleman's challenge was that tenants' wishes were not being accepted, but their wishes seem far from clear or precise. That supports our proposal to carry out an information campaign to ensure that all the objections are brought to the attention of the tenants.
Far from being a "piecemeal and disorganised" proposal, these measures, to which much consideration has been given, offer the best prospect for the new towns to move forward to a new environment and to maintain the momentum that they have so firmly established.

Sir Hector Monro: Does my hon. Friend agree that the new towns have been a great success in both industry and housing, and that there is no reason why they should not be further enhanced under the proposal that he has announced? Will he try, through the SDA, to promote throughout the rest of Scotland some of the excellent ideas that have borne fruit in the new towns? Finally, can he assure me that new towns with airstrips, which are important for executive travel in Scotland, will ensure that they are still available in the long-term future?

Mr. Lang: I am grateful to my hon. Friend for welcoming the proposal. I certainly agree with his suggestion that the enterprise and ideas that we seek to advance in the new towns should be promoted throughout Scotland, and, if my hon. Friend can contain himself until my right hon. and learned Friend the Secretary of State is able to make his statement on the Scottish Enterprise proposals, I think that he will then see the kind of enterprise initatives that we are keen to foster.
I also agree that the airports are a valuable asset. I have flown from the airport at Cumbernauld, and I believe that those assets should be developed, and will be to the advantage of the new town areas in future.

Mrs. Margaret Ewing: As one who has lived in, worked in, and at one stage had the honour of representing, one of the new towns, I am appalled by the Minister's proposals. Does he not accept that one of the greatest strengths of our new town communities has been the sense of identity and community that was fostered so carefully in them? Where will that sense of identity and community be respected in the proposed local development companies and the proposed sell-off of community assets?

Mr. Lang: I believe that a sense of community is to be found not only in new towns but in all other towns and cities around Scotland. When the new towns no longer have the special status that they have enjoyed in the past, I believe that the maturity and sense of community that they achieved will be sustained and carried forward into the future. Nothing that we are doing will undermine that.

Mr. Bill Walker: Does my hon. Friend agree that, while we in Scotland have welcomed the development of the new towns, there has always been a feeling in the old towns and boroughs that the new towns have advantages not enjoyed by others that have been established for much longer? My hon. Friend's proposals will provide more of a level playing field, and other towns will now enjoy some of the advantages that may formerly have been the sole benefit of new towns. Does my hon. Friend also agree that the introduction of private sector enterprise, skills and initiative will help the new towns to build on what they already have?

Mr. Lang: I agree entirely with my hon. Friend. The new towns are extremely important to the economy of Scotland. Over the last seven years, some 40 per cent. of inward investment has gone to them. That has created over 30 per cent. of the jobs that have been derived from inward investment. We are keen to foster and preserve that kind of achievement in the new arrangements. I am grateful to my hon. Friend for his support of them.

Mr. Adam Ingram: The 45,000 tenants of the new towns in Scotland and the 250,000 people who live and work in the new towns will view the statement with anger and dismay. Will the Minister give an assurance that the assets will be transferred at full market value at the time of wind-up? Will he also confirm that he is saying to new town tenants that on wind-up they will not be allowed to choose the district council as their landlord?

Mr. Lang: I believe that, far from being angry, the tenants will be pleased that they are not being pressed to make a decision on their future housing, given the uncertainty about their preferences. I canot tell the hon. Gentleman what the value of the assets will be at the time of wind-up, but he may rest assured that the Government's purpose is to secure an appropriate value for them. That value will reflect what the market is willing to pay. There is absolutely no mystery about that.

Mr. Robin Cook: Does the Minister not appreciate that it is hardly surprising that new town residents are uncertain about which tenure they wish to have, given his refusal to come clean about the choice that will be available to them? If it is indeed the case that the figures that he has received show that less than half would wish to choose the district council, why is he so afraid of putting that choice to every tenant of the new towns? Does he not appreciate that the Government's rhetoric about tenants' choice will sound like humbug to them if he rules out the one option that the largest single body of tenants would wish to exercise?

Mr. Lang: The hon. Gentleman seems not to have heard what I said. We have not ruled out the district council as an option. We believe that all the options must be considered at the appropriate time. What is plain is that


the vast majority of tenants have not given adequate thought to the matter. They need to be made more aware of all the options that will be open to them.

Mr. Norman Hogg: The statement will be deplored by the people who live and work in the new towns, not least the highly professional staff who administer the new towns. Is the Minister able to say a little more about what will happen to those highly professional people? What steps does he intend to take to ensure that they are retained in the service of the new towns until wind-up in order to maintain the efficiency to which the new towns have become accustomed?

Mr. Lang: As the hon. Gentleman will have heard, wind-up will proceed over a period of years, with the last new town completing wind-up some 10 years or so from now. During that time, each new town will approach the matter of divesting itself of some of its activities—by hiving off or by the privatisation of functions—in a different way. There will be opportunities for employees of the new town corporations to move out with the functions that they fulfil. There will also be a measure of natural wastage and retirement, and even early retirement. The redundancy payment arrangements, supervised by the Whitley council and the Scottish National Joint Council agreements, will of course be honoured. In the meantime, we have already given the new towns permission to exercise the appropriate use of retention provisions for key workers.

Mr. David Lambie: As the Member of Parliament who represents Irvine new town, I, too, wish to express my anger about the statement which will lead to a rip-off of public sector assets in the new towns. I am glad that the Minister confirmed that the wind-up will be phased. Will he also confirm that the wind-up of Irvine new town will start in 1996 and that it will not be completed until 2000? I am quite happy about that, because there will have been a general election before that which will return a Labour Government.
I hope that the Opposition Front-Bench spokesman will confirm today that a Labour Government will rescind the statement and continue the build-up of the new towns.
I am glad that the Government are considering the possibility of a management buy-out for the private local development companies. Will they guarantee that Strathclyde regional council or Cunninghame district council will be allowed to hid for Irvine development corporation? Every survey carried out by Cunninghame district council and every ballot among the tenants of Irvine new town shows that more than 90 per cent. of the tenants want the district council as their future landlord if they are taken away from Irvine development corporation. Will the Minister confirm that if those figures are verified in any future survey, the tenants of Irvine new town will be allowed to choose Cunninghame district council as their landlord and will not be handed over to the wolves of Scottish Homes?

Mr. Lang: I am happy to confirm to the hon. Gentleman that the wind-up for Irvine will start in 1996, by which time he will probably be resting at home with his feet up or in another place watching our proceedings. In the meantime, there is a certain amount of work to be done in Irvine. It is clear from the survey that the tenants are uncertain about their future, and if they were invited to

choose now, a very small proportion—fewer than one in five—would choose a district council. That underlines our conviction that it is right not to make a firm decision now, but to give the tenants the opportunity to find out more about the alternatives open to them.

Mr. Henry McLeish: I am sure that the people of Glenrothes will be dismayed, disappointed and bitterly angry at the Minister's statement. They will feel that it is a betrayal of 40 years of success and achievement in Glenrothes. They will also find the statement breathtaking in its contempt for local authorities, the staff, the tenants and the residents of Glenrothes. Will the Minister tell the House on what model he is basing the private sector company that will take over the industrial assets of the new town? If the three-year time scale is not appropriate because of the problems involved, will he be willing to reconsider that part of today's statement?

Mr. Lang: Far from our indicating contempt for local authorities, in many ways the role of the district council will be enhanced as a result of the proposals. Local democracy will be far more complete than it is now, as it has often been said in the past that development corporations stand in the way of local democracy. In many aspects, such as special needs housing, the housing of homeless persons and the possibility of taking over community assets, the district council will have an important role to play. The local development company will be a private sector company with share capital and articles of association. It will be commercially driven and will be a normal company.

Mr. Harry Ewing: Referring specifically to the industrial and commercial aspects of the proposals announced by the Minister of State, will regional and district councils be allowed to tender to purchase those industrial and commercial assets of the new towns, and if not, why not? Is it true that Mr. Bill Hughes of the CBI has been given a specific role to attract interested parties to purchase those industrial and commercial assets? Finally, is the Minister aware that a fair number of people in prisons throughout Scotland who have been sent there for corruption will feel hard done by tonight?

Mr. Lang: I am not quite sure what the hon. Gentleman meant by his last remark, but perhaps that is just as well.
In regard to local authorities bidding for commercial and industrial assets, we are considering the Widdicombe prosposals on the economic role of local authorities and will make an announcement in due course. I do not envisage a regional council or local authority forming the basis of a bid for a private sector company. That does not seem to be an appropriate measure. A private sector bid, put together by business men who have an awareness of these matters and commercial and enterprising drive, would be more appropriate.

Mr. David Marshall: Contrary to the Minister's opening remarks, there is nothing particularly Scottish in this statement, only particular contempt for the Scottish people. The statement smacks of potential corruption and asset-stripping. Will the Minister give a cast-iron guarantee that no tenants of new town houses will have their homes sold to private landlords without their consent?

Mr. Lang: Perhaps I may first be allowed to refer to the point made by the hon. Member for Falkirk, East (Mr. Ewing) about Mr. Bill Hughes. It is nonsense. I am not aware of any reference to Mr. Bill Hughes being involved in the disposal of these matters.
As for the tenants of the housing corporations, we are not ruling out the option of possible transfer to the district council at a later date. However, we are saying that now is not the time to take a decision in favour of that or any other option. The important point is to make the range of options clear to tenants, to increase awareness and understanding of the various forms of diversification of tenure and the possibility of increasing ownership—with 40 per cent. of tenants in new town houses wishing to buy their homes—and to ensure that all those matters are fully explored before final decisions are taken.

Mr. John McAllion: The Minister has already admitted this afternoon that the two thirds of tenants who wish to stay with the new towns are to be denied that choice and instead, are to be transferred forcibly to Scottish Homes on wind-up.
Another Minister has admitted that Scottish Homes will be set targets, including the target of disposing of 60 per cent. of any houses acquired within three years. Given that the tenants are to have no choice about staying with the new towns, about being transferred to Scottish Homes on wind-up and about being moved on by Scottish Homes into the private sector, how can the Minister continue to defend the idea that the Government's policies are about increasing choice to tenants?

Mr. Lang: Many tenants of new towns have exercised the choice in favour of private ownership, which has risen from 8 per cent. a decade ago to over 50 per cent. now over the five new towns and to over 50 per cent. in four of the five new towns. Forty per cent. of the remaining tenants have expressed interest in buying their homes. That is an exercise of choice which is highly desirable.
The hon. Gentleman asked me about tenants being forced to leave the development corporation. When the development corporation is finally dissolved, they will not, of course, be able to remain tenants of the development corporation and we have, therefore, provided for Scottish Homes to take over the remaining tenants who have not exercised other options by that time.

Mrs. Maria Fyfe: Will the Minister describe a little more fully what he means by an appropriate valuation for the assets that are to be sold off? Will it have any resemblance to Lady Porter's valuation of a Westminster cemetery? Will he also describe what impact the proposals may have on the rent that tenants in the new towns have to pay? What impact will the proposals have on the job conditions and pay of those who work at places such as sports centres? The Opposition feel that the proposals lack rigour and seem to provide great dangers for the future existence of many of those facilities.

Mr. Lang: I see no reason why the job conditions should be affected by the change. Rent levels are covered by existing leases and will not be affected directly by the proposals affecting the new town. There will be a value of assets that the market will be able to sustain. I cannot tell the hon. Lady what that market value will be. That realistic appraisal of the value of the property will guide the sale price at the time.

Mr. Tam Dalyell: In his statement, the Minister said:
I know that the corporation staff are anxious to press ahead with these programmes.
Which staff? How does he know? Has any ballot been taken? People working in Livingston are gravely worried about the future.
The Minister also said:
At wind-up, when stage two is reached, the option of a partial transfer to district councils is not ruled out.
Will he answer the question of my hon. Friend the Member for Livingston (Mr. Cook) about whether each individual tenant has a right to an option?

Mr. Lang: The hon. Gentleman will know that I and my Department have close and continuing contact with the new towns. It is clear that they are anxious to complete the development profiles. We are seeking to enable them to do that by phasing the wind-up processes as we have arranged. We have made it clear that we are not ruling out the district council as an option for tenants, but we are equally taking the view that now is not the time when there is the need or the desire to take a decision one way or the other.

Elderly Persons (Right to Buy) Amendment Bill

Mr. Rhodri Morgan: I beg to move
That leave be given to bring in a Bill to abolish discrimination against elderly persons in access to the "right to buy" provisions of the Housing and Planning Act 1986 by providing elderly persons with full rights to buy their own homes in local authority or housing association rental schemes, except where the accommodation has been specifically adapted or designed for elderly persons and where no such accommodation has been allocated to persons below pensionable age; further to provide no-fee arbitration by reference to the Housing Corporation in England and Tai Cymru in Wales in the case of any dispute between tenant and public sector landlord on the applicability of the exclusion of accommodation defined as specially suitable for elderly persons.
Especially in the context of the preceding debate, it may seem strange for a Labour Member to seek to introduce a Bill to extend the right to buy. Let me explain what my Bill is intended to do. The purpose of the Bill is to remove discrimination against elderly persons who are excluded by law from purchasing accommodation that is especially suitable for them whole young persons who are allocated identical accommodation can exercise the right to buy although that accommodation was not designed specifically for them. That is illogical, and the Government must face the fact that they have created an anomaly in the Housing and Planning Act 1986. My Bill represents a modest attempt to put that right and to introduce some logic into the right-to-buy legislation.
I hope that the Bill will encourage the Government to face up to the implications of the right to buy in general and to the legislation that contains it in particular. We all have to face the fact that there is an increasing number of elderly people in our society; it is sometimes called "grey power". The size of the elderly population will be doubled and trebled in the next decade. We also need to consider our view of the exact purpose of property ownership and to ask ourselves whether we consider it as particularly suited to young people and as something from which elderly people should be excluded. We must try to avoid the division of our society into a two thirds-one third society, of which we have seen serious signs in the United States and, in the past decade, increasing signs in this country, too. We must avoid at all costs introducing any legislation that would do anything to encourage that.
We must work towards the sustainability of the social housing stock and fluidity of the boundary between that social housing stock and the people who occupy it and the so-called private housing stock, albeit subsidised in a social fashion through the mortgage payment subsidy.
Accommodation for elderly persons poses particular problems. An elderly person's concept of private ownership is no longer necessarily the concept of 100 per cent. equity ownership. The elderly person's sub-group of the National Federation of Housing Associations recently did some excellent work on the problems of the 25 per cent.—75 per cent. equity stake, which is particularly suitable for the elderly. Problems also arise in the exact definition of service charges for elderly persons' accommodation, given that elderly people require many more services than others. They may seek greater security and they may have problems with additional heating bills.

All those factors mean that housing for the elderly will not necessarily be identical to the accommodation that is most appropriate for younger people.
The problem will grow and grow. In addition to the increasing number of elderly persons, we have an increasing number of elderly persons surviving for about 25 years after their retirement—about the same time as the term of most people's mortgage. It is not unusual for the elderly to be alive and kicking 25 years after their pension starts to be paid. That means that, in terms of time, at least, they are perfectly capable of paying off a mortgage. Ten years ago, people would have said, "What is the point of a woman of 60 or a man of 65 taking out a mortgage?" But, subject to the person's income, that is now a perfectly sensible proposition.
Most important of all is the increasing concentration of local authority and housing association activity on housing for the elderly. That is the direction in which the Government want their efforts to go. That being so, they must also think through the implications of the right to buy in this area of increasing effort.
An additional consideration is that there are now many people in areas such as mine who cannot get on the housing ladder. One of the ways in which they can do so is if their elderly parents acquire an asset through exercising their right to buy, pay a mortgage and pass it on. Nobody on an industrial wage in my area can start on the housing ladder because there are no houses left at under £30,000.
My Bill attempts to solve some of the incompatible and irreconcilable objectives of the present law. All are perfectly valid bits of social engineering, but they do not add up. My Bill attempts to make them add up
There are charitable housing associations and local authorities who want to build for the elderly. The Government want to support them, but the market does not. Housing associations and local authorities do not necessarily want to create ghettoes for the elderly. That is another important aspect of social engineering. Flats in blocks built for the elderly are occasionally let to young persons. Immediately that happens, one gets into difficulty. If a local authority nominates a young person into an elderly persons' block of flats, that young person can normally exercise the right to buy, but the elderly people for whom the flats were designed cannot. Jealousy and social discord arise in what was previously a happy community. Elderly people then ask why they cannot have the same right as the young person. The answer may be to refuse to allocate elderly persons' flats to young people. That is covered in my Bill. It restricts local authorities' or housing associations' ability to mix the young and the elderly.
Local authorities and housing associations may say, "We want to build enough accommodation of this kind so that even though some of it is allocated under the right to buy there is sufficient left over that can be rented."
It is now time for the Government to accept that they must consider the consequences of their attitude to the right to buy. There must be a sustainable housing stock. That has to be the first priority. The right to buy, if it is to be a genuine benefit, must he sustainable and not a one-off phenomenon of the 1980s to shrink local authorities down to size—euthanasia for the municipal housing sector. We must avoid creating massive homelessness.
If we extend the right to buy, we have also to extend the right to build, or there will not be any social housing. Homelessness and an inability to accommodate the elderly will be the inevitable consequences.
If the right to buy is not to be exercised as a political benefit that is just available to the first in the queue in the 1980s, we cannot exclude the elderly. We had the right to buy mark one—simply the right to buy a local authority house regardless of what the local authority thought. Mark two extended the right to a discount. Mark three extended the provisions to housing associations, prison officers and some disabled people. We have not faced the logic of mark four—why should it be restricted at all? It has to be restricted only because we do not have the right to build. The right to buy and the right to build should exist side by side. I hope that this Bill will force the Government to think through the consequences of the right to buy.
If we are to cease to exclude the elderly from the right to buy, we have to accept that there must be a comparable right to build so that there is a sustainable housing stock. There should be an ability to rent, an ability to rent with a view to eventual purchase, and an ability to rent and continue to rent.
This is a modest amendment to the Housing and Planning Act 1986. It will bring some equity and justice into the provision of housing for the elderly. It removes discrimination in the provision of accommodation for young and elderly people, removes the present nonsensical state of affairs, and raises the issue of whether we are building enough social accommodation or whether the right to buy was simply a temporary political benefit intended to achieve the re-election of the Conservative Government.

Question put and agreed to.

Bill ordered to be brought in by Mr. Rhodri Morgan, Mr. Paul Flynn and Mr. Frank Field.

ELDERLY PERSONS (RIGHT TO BUY) AMENDMENT

Mr. Rhodri Morgan accordingly presented a Bill to abolish discrimination against elderly persons in access to the "right to buy" provisions of the Housing and Planning Act 1986 by providing elderly persons with full rights to buy their own homes in local authority or housing association rental schemes, except where the accommodation has been specifically adapted or designed for elderly persons and where no such accommodation has been allocated to persons below pensionable age; further to provide no-fee arbitration by reference to the Housing Corporation in England and Tai Cymru in Wales in the case of any dispute between tenant and public sector landlord on the applicability of the exclusion of accommodation defined as specially suitable for elderly persons: And the same was read the First time; and ordered to be read a Second time upon Friday 21 July and to be printed. [Bill 180.]

Orders of the Day — Finance Bill

Not amended in the Committee (and as amended in the Standing Committee), considered.

New Clause 19

TREATMENT OF CONVERTIBLE SHARES OR SECURITIES FOR PURPOSES RELATING TO GROUP RELIEF ETC.

(1) Paragraph 1 of Schedule 18 to the Taxes Act 1988 (which contains definitions relating to group relief) shall be amended in accordance with this section.

(2) For sub-paragraph (3)(b) there shall be substituted—
(b) do not carry any right either to conversion into shares or securities of any other description except—

(i) shares to which sub-paragraph (5A) below applies,
(ii) securities to which sub-paragraph (5B) below applies, or
(iii) shares or securities in the company's quoted parent company, or to the acquisition of any additional shares or securities;"

(3) For sub-paragraph (5)(a) there shall be substituted—
(a) which does not carry any right either to conversion into shares or securities of any other description except—

(1) shares to which sub-paragraph (5A) below applies,
(ii) securities to which sub-paragraph (5B) below applies, or
(iii) shares or securities in the company's quoted parent company, or to the acquisition of any additional shares or securities;"

(4) After sub-paragraph (5) there shall be inserted—
(5A) This sub-paragraph applies to any shares which—

(a) satisfy the requirements of sub-paragraph (3)(a),(c) and (d) above, and
(b) do not carry any rights either to conversion into shares or securities of any other description, except shares or securities in the company's quoted parent company, or to the acquisition of any additional shares or securities.

(5B) This sub-paragraph applies to any securities representing a loan of or including new consideration and—

(a) which satisfies the requirements of sub-paragraph (5)(b) and (c) above, and
(b) which does not carry any such rights as are mentioned in sub-paragraph (5A)(b) above.

(5C) For the purposes of sub-paragraphs (3) and (5) to (5B) above a company ("the parent company") is another company's "quoted parent company" if and only if—

(a) the other company is a 75 per cent. subsidiary of the parent company,
(b) the parent company is not a 75 per cent. subsidiary of any company, and
(c) the parent company's ordinary shares (or, if its ordinary share capital is divided into two or more classes, its ordinary shares of each class) are quoted on a recognised stock exchange or dealt in on the Unlisted Securities Market;

and in this sub-paragraph "ordinary shares" means shares forming part of ordinary share capital.
(5D) In the application of sub-paragraphs (3) and (5) to (5B) above in determining for the purposes of sub-paragraph (5C)(a) above who are the equity holders of the other company (and, accordingly, whether section 413(7) prevents the other company from being treated as a 75 per cent. subsidiary of the parent company for the purposes of sub-paragraph (5C)(a), it shall be assumed that the parent company is for the purposes of sub-paragraphs (3) and (5) to (5B) above the other company's quoted parent company.

(5) In sub-paragraph (6) for the words "to (5)" there shall be substituted the words "to (5D)".

(6) This section, so far as relating to Schedule 18 of the Taxes Act 1988 in its application (by virtue of section 137 below) for the purposes of subsections (ID) and (IE) of section 272 of the Taxes Act 1970, shall be deemed to have come into force on 14th March 1989.'.—[Mr. Norman Lamont.]

Brought up, and read the First time.

The Financial Secretary to the Treasury (Mr. Norman Lamont): I beg to move, That the clause be read a Second time.
The purpose of this new clause is to help groups of companies raise finance through subsidiary companies, either by issuing fixed-rate preference shares or by raising normal commercial loans. If those shares or loans carry a right to conversion into other shares or securities, at present the subsidiary company may not be entitled to the normal tax reliefs available to a group of companies. For example, it may not be able to claim group relief, which allows the trading losses of one company to be set against the taxable profits of another member of the group.
In some cases it is right that these tax reliefs should not be available. For example, if the conversion right is into ordinary shares of the company, the economic ownership of the company may lie largely outside the group. In other words, the holder of the preference shares or the lenders may have a large stake in the performance of the company, so, if the company does well, its right to convert into ordinary shares in the company will become more valuable. If the tax reliefs for groups of companies were available in such cases, it would be possible to devise arrangements which would abuse the reliefs to avoid tax. The new clause does not affect such cases.
However, in other cases, the conversion rights do not give the shareholder or the lender a stake in the performance of the company. For example, a loan may be convertible into fixed-rate preference shares, or the conversion right may be into shares or securities in the parent company of the group. In such cases there is no reason why the normal tax reliefs for groups of companies should not be available. The new clause therefore provides for conversion rights like those to be disregarded when establishing the economic ownership of a company for the purposes of group relief. The group relief ownership rules are applied for the purposes of some other tax provisions, and the change will therefore affect them as well.
The other provisions concern the surrender of advance corporation tax by a company to a subsidiary company, the payment of dividends or interest between members of a group, and the definition of a group for capital gains tax purposes.
This change is highly technical. It will not have a major impact on the operation of the tax system. The new clause builds on the changes that we made in clause 99. If the hon. Member for Islington, South and Finsbury (Mr. Smith) recalls, we restricted group relief to avoid a number of artificial devices and circumstances by which the economic control of a group was not where it might have been thought to be. There were artificial devices to create groups of companies to get group relief. In framing clause 99, we introduced some provisions that could harm certain perfectly legitimate operations.
The new clause simply relieves the provisions that we made in clause 99 so that we will not damage genuine

commercial fund-raising operations of the type that I have described in my examples. The provision will not damage companies in that situation. It is because we have received a number of representations detailing examples where genuine commercial operations might be affected adversely that we have made these modest changes. However, the new clause will not have a major impact on the operation of the corporation tax system.

Mr. Chris Smith: I have examined the new clause with considerable care. As the Financial Secretary has stated, it represents a small loosening of the fairly tight provisions of clause 99, which passed its Standing Committee stage with flying colours.
The provisions of the new clause are relatively unexceptionable. However, I have one question. The Financial Secretary stated that he did not expect the provisions to make much difference to the corporation tax regime. Have the Government made any estimates of the possible lost revenue to the Exchequer as a result of this provision?

Mr. Lamont: The cost of the change is likely to be negligible. Both the new system introduced here and in clause 99 will produce approximately the same yield as the old system, but the timing of receipts might be different in individual cases.

Clause read a Second time, and added to the Bill.

New Clause 3

PREMIUM BONDS

'No regulation made under the National Debt Act 1972 relating to premium bonds shall be valid unless:

(1) it contains no prohibition on the smallest number of bond units which can be purchased unless that number is less than eleven, or
(2) it has been the subject of an affirmative resolution of the House of Commons.'.—[Mr. Chris Smith.]

Brought up, and read the First time.

Mr. Chris Smith: I beg to move, That the clause be read a Second time.
From 1 July this year, the minimum purchase of premium bonds for savers aged 16 or over increased from £10 to £100. The new clause seeks to reverse that change, which was made by statutory instrument under the National Debt Act 1972, and to ensure, by means of primary legislation, that such a restriction on premium bond purchase can never be so easily introduced again.
Premium bonds were first introduced in 1956. The minimum purchase required then was £1, which in today's prices was the equivalent of £8·43. The minimum purchase was raised to £10 in July 1985, worth £11·79 at today's prices. The original top prize was £1,000. It is now £250,000. However, the structure of the prize system of the premium bond programme is such that overwhelmingly the bulk of the prizes still tend to be in relatively small amounts. A key point about the threshold that the Government are now seeking to establish is that many of the prizes tend to be reinvested as further purchases of premium bonds.
The premium bond system has an absurdly low underlying interest rate of about 6.5 per cent. It is absurdly low in current circumstances, when the base rate is so high.
The rate has not changed in recent months and in a recent written answer the Government have refused to consider changing the underlying interest rate for premium bonds.
It is worth reminding ourselves that premium bonds are a mass appeal product with a large customer base. About 24 million people in this country hold them, and there are about 2·5 billion holdings. There are about 2 billion transactions in any one year and the investment totals about £2·25 billion. The product is clearly extremely popular.
It is also worth pointing out that most purchases of premium bonds tend to be small. The Government have tried to disguise that fact in recent answers, statements and press releases, but the truth was revealed in a parliamentary answer to the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) on 26 May, who had asked
what proportion of the actual numbers of all purchases of premium bonds are currently made under the value of £100." —[Official Report, 26 May 1989; Vol. 153, c. 808.]
The answer was about 80 per cent. So 80 per cent. of purchases of premium bonds under the old rules, which will no longer apply from 1 July, will no longer be possible.
Figures supplied by the Department for National Savings to its trade union side are similarly revealing about the numbers sold in the first three months of this year. In January, the number of purchases under £100 was 169,000 and the percentage of the total 81·1 per cent. In February the number was 135,000, a percentage of 80·5. In March this year the corresponding figures were 140,000 and 81·4 per cent. It is clear that an overwhelming number of purchases of premium bonds are consistently lower than £100.
The Government have presented their case for raising the threshold to £100 somewhat disingenuously. In their press statements and parliamentary answers they have focused on the value of the bonds issued, not on the number of purchases. In an answer on 5 May, the Chancellor of the Exchequer said:
Sales of less than £100 represent only 12 per cent. of the total value of purchases."—[Official Report, 5 May 1989; Vol. 152, c. 255.]
That is the story that the Government have been trying to put across—that this is not important because it affects only 12 per cent. By that they mean only 12 per cent. of the value of purchases; it is 80 per cent. of the number of purchases. Thousands of small savers throughout the country will be profoundly affected by the change that the Government are bringing in.
The Government will claim that they have included a protection for people under the age of 16 or people buying on their behalf. The Department for National Savings admits that it is difficult to judge what proportion of purchases have hitherto been of this type, but the best figures it has been able to supply show that about 5 per cent. of total purchases are made on behalf of people under the age of 16. So the Government's concession for minors is relevant to only a small percentage of purchases of premium bonds in any year.
We advance a number of reasons why we believe the Government are wrong to raise the minimum purchase threshold in this way. First, there is a desperate need to raise the personal savings ratio in the economy. We know that net personal savings are at their lowest since records

began. We know that saving has a counter-inflationary effect. We also know that the only method of encouraging personal savings that the Government have so far adopted in the Budget of this year, in instruments brought forward since the Budget and in the Finance Bill, is the massive boost they have given to personal equity plans. The measures that they have brought in for premium bonds restrict the possibilities of saving at a time when it is crucial, for inflationary and macro-economic reasons, to encourage saving.

Mr. Tim Smith: The hon. Gentleman keeps on talking about savings and investment in the context of premium bonds. Does he really regard premium bonds as an investment, given that whether one receives a return is a total lottery, and the smaller the holding, the more of a lottery they become?

Mr. Smith: I shall come to that point in a moment. It is the only argument that the Government have hitherto advanced for this measure, and the simple answer to it is that a premium bond holding is undoubtedly a form of saving and as such it counts in the overall savings profile of the economy. Of course it is not a guaranteed investment. It is a form of saving that involves taking a chance, not an assumption of guaranteed return, but it is saving none the less and we need to promote saving rather than over-consumption.
Our second reason is that there is a need to boost the facilities for and prospects of the small saver. By definition, a £100 threshold rules out the chances of thousands of small savers and investors. I urge the Government to listen to what some of them have to say. The first letter was sent to my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) by a gentleman in County Down in Northern Ireland, who writes:
My main concern is the new rules for premium bond purchases which gave hope to the worse off or small investor like myself of maybe some day winning a few thousand, not necessarily the jackpot, but this is now being turned into a club for the rich, or the elite.
In a letter to the Chancellor copied to my right hon. Friend the Leader of the Opposition, a lady in Bromley writes:
The only reason for doing this obviously is to penalise the poorer members of our society who cannot hope to buy bonds when they are such a price. My husband and I are from the so called `Thatcherite' generation for whom things are now meant to be so good. We will not be able to buy one of your bonds from 1st July.
That is the voice of small savers up and down the country. By placing the threshold for a premium bond purchase at £100 rather than £10, the Government are making available opportunities for the better-off at the expense of the small saver—the person who puts aside £1 a week; the investor who wins £50 and then reinvests it; and those who live with the dream that one day they may strike lucky with only a small holding of premium bonds to their name.
Our second major argument is that the change will not only harm the profile of savings in the economy as a whole, but it will especially harm the small savers within the economy.

Mr. James Arbuthnot: I apologise to the hon. Gentleman for not having been here for the whole of his speech. I accept that there is some point in what he has said. However, does he not also


believe that the change to £100 may turn a small saver into a larger saver? Those who might have been previously intending to invest, say, £30 in premium bonds will find that they must and, therefore, do invest £100 in premium bonds.

Mr. Smith: There is always some hope when Conservative Members begin to see that there might be some justification in the arguments which are consistently and powerfully mounted from the Opposition Dispatch Box.
In suggesting that the limit of £100 will mean that everyone who perhaps has £20 or £30 to invest will now rush out and invest £100, the hon. Member for Wanstead and Woodford (Mr. Arbuthnot) is assuming that everyone is in a position to do precisely that—but they are not. Many thousands of people want to participate in the premium bonds system in the hope that they will win something at the end of the day, but they are unable even to conceive of investing £100 or anything like it, as the hon. Gentleman suggests that they may be encouraged to do by the new rules.
Thirdly, we are deeply concerned about the whole trend of national savings administration under the Government. Already—about three months ago—rules have been brought in for a minimum £5 deposit in national savings accounts. At the end of last month national savings gifts tokens were withdrawn from sale. It is perhaps worth noting that some two thirds of national savings gift tokens have tended to be used for subsequent premium bond purchases. The whole tenor of Government premium bond advertising in the last year and a half, including by direct mail, has been based on a marketing strategy appealing to large-scale holders of bonds—one suggesting that they have a better than average chance of winning
a good run of tax-free prizes".
The Government are turning bonds into a lucrative lottery for the upwardly mobile. They are in danger of turning other aspects of national savings into a similar vein. The character and the purpose of premium bonds as an attractive option for the small saver without very much money to invest are being lost in the process.
The Government claim that they have reasons for what they are doing and a number of those were advanced in a brief debate in Standing Committee. The Government's first reason concerned the high administrative cost for small amounts of savings. They say that it costs £2 per person to administer a premium bond application, no matter what its value. Of course, such a statement ignores the statistical probability of winning, which becomes greater the higher the value of the premium bond. Therefore, the likely cost of administering the winnings will increase, too. That statement ignores the massive profit that the Exchequer makes out of premium bonds. The 6·5 per cent. rate of underlying interest gives the Exchequer a healthy profit. It ignores also the cost-effectiveness of the administration of the scheme. There are 1,300 staff employed to administer the premium bond scheme, with its 24 million bond holders. Management costs are 1·1 per cent., which I should have thought was somewhat favourable by comparison, for example, with unit trust costs. Therefore, the Government's argument about the administrative costs of the small investor in premium bonds does not hold water and ignores the key point, which is that, whatever the method of saving adopted, small savings will always be

administratively more expensive. That is no reason for abandoning them altogether, but it is a reason for deciding that we must accept the cost of administering small savings, come what may.
The Government advanced the somewhat peculiar argument that they believe in promoting quality savings and that premium bonds are a low quality form of saving. That is where the point made by the hon. Member for Beaconsfield (Mr. Smith) comes into play. He was echoing what the Minister said on 20 June in Standing Committee. The point is that purchasers of premium bonds weigh up in their minds, when they go out to buy them, the balance of advantage between the chance of a big win and the guarantee of income against depreciation. They decide what form of savings they want to put their money into. They decide whether they want a guaranteed return to protect their money automatically against depreciation or whether having a flutter with a premium bond or two is something that they would rather do than go for some form of guaranteed income. The important point is that it is they who should make the decision. The Government should not make it for them.
The key is customer choice. It is not up to the Government to dictate in a somewhat lofty fashion what is good quality and what is poor quality saving. 'That is a tawdry argument. It is not for the Government to say that, because there is no form of guaranteed return on premium bonds and that people enter into premium bond schemes thinking that they may have a chance of winning substantially, but knowing equally that they may not, it is a low quality saving and, therefore, they will implement a penal threshold that will prohibit hundreds of thousands of people from going into the premium bond market. It is up to individuals to make their decisions. Until 1 July, that is how the system worked. We are calling on the Government to reverse the changes brought in on 1 July, to stand up for the small saver, and to accept the new clause.

Mr. Win Griffiths: I would not cross the road to buy a premium bond and indulge in that type of flutter, but millions of people like to buy a modest number of bonds in the hope of winning the largest prize that is offered. It is no argument for the Government to say it is a low-quality form of saving.
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The minimum investment of £1 when premium bonds were first introduced was changed to a minimum of £10 in 1985, which was roughly in line with inflation—though perhaps slightly in excess of it. At the present level of inflation, the minimum investment figure would need to be £12, so the Government's figure of £100 is excessive and would exclude on current figures about 80 per cent. of investors. Twenty-one per cent. of premium bond investors are old-age pensioners, and 19 per cent. of them purchase less than £100 worth of bonds.
There can be no doubt that the Government's proposal will exclude a large number of people who want to make a small investment in the hope of winning one of the bigger prizes. The Government argue that the cost of each premium bond transaction is £2 and therefore it is not worth selling bonds to a value of less than £100. Figures provided in a written answer of 8 June reveal an overall increase in the amount invested since 1985 by those purchasing premium bonds in blocks of £10, £20, £30, £40


and £50. The aggregate of purchases individually having a value of between £10 and £50 in 1985 was £26·6 million, but had increased to £34 million.
In 1985, purchases of £10 worth of premium bonds accounted for 5 per cent. of the total value of sales in 1985, falling to 3·2 per cent. by 1989. However, the value of £20 purchases doubled from 0·6 per cent. to 1·2 per cent. Purchases of £30 worth of bonds increased marginally, from 0·7 per cent. to 0·8 per cent., while sales of £40 units fell marginally from 0·7 per cent. to 0·6 per cent. Sales of £50 units of premium bonds also fell, from 5·7 per cent. to 5·2 per cent. However, across all those denominations there was an overall percentage increase. If the Government want to set the lower limit at a figure higher than £10, an appropriate sum would be £20, which is the point at which there has been a doubling of sales over the past five years. A £100 cut-off point can be viewed only in the context of a desire by the Government to cut costs.
An article in The Sunday Times of 26 June suggested that the Government are introducing the £100 cut-off point as they no longer need to borrow money through premium bond sales because they are receiving so much into the Exchequer from privatisation and other measures. But if we are to believe the Department for National Savings' annual report for 1987, people willing to invest sums averaging more than £1,000 in the hope of having a good run of tax-free prizes were targeted in a drive to increase investment, which included direct mail.
The evidence is that the Government are encouraging people with £1,000 or more to invest in premium bonds because the Government make a large profit from such investors, but that they do not want to be bothered with the ordinary investor, such as the pensioner who likes a little flutter. Such investors are not to be allowed freedom of choice, which is so vaunted an element in the Government's prospectus for the 1980s.
The Department for National Savings received a large number of complaints about the higher level of minimum purchase. I wonder whether the Minister is aware of the scale of that protest. All the evidence is that people of small means are happy to forgo any interest on their investment in the hope of making a tax-free capital gain from premium bonds. It is not too late for the Minister to think again and to make millions of people much more contented. When one considers the current state of the opinion polls, that aspect is not one which the Minister can ignore. I should not want to do anything that would help him politically, but there is widespread concern that millions of investors will be arbitrarily excluded by the £100 cut-off point, which has no economic or fiscal justification other than the Government's dislike of having to meet the cost of £2 per transaction unless an individual purchases at least £100 worth of premium bonds. I ask the Minister to consider small investors and to accept the new clause.

Mr. Tim Smith: It is a fascinating commentary on the priorities of the Labour party that of all the areas of tax reform that might be thought important, when it comes to starting the Report stage of the Finance Bill, with the opportunity to instigate a major debate on tax reform, the Opposition's choice of subject is premium bonds. It is also

a perverse comment on the House. Although the premium bond scheme is important, there are many more important areas of tax reform that the House ought to be debating.

Mr. Robert Sheldon: I remind the hon. Gentleman that my right hon. and hon. Friends also tabled new clauses 1, 2 and 6, but they were ruled out of order. They dealt with very important matters concerning privatisation and the amounts that the taxpayer received as a result of sales of public assets. I would dearly have loved to participate in a debate on those new clauses, but they were not selected. Perhaps that is one of the problems about our rules of procedure.

Mr. Smith: The fact that those new clauses were not selected has nothing to do with me. They would have affected only a handful of companies. Surely most people are more keen to hear the Labour party's views about the aspects of tax reform that affect most taxpayers. For example, what does the Labour party think about the reform of income tax? We are not considering that. We are discussing the details of the premium bond scheme.
The hon. Member for Islington, South and Finsbury (Mr. Smith) advanced three arguments against the changes that the Government recently announced and which took effect from 1 July. First, he pointed out that the savings ratio had fallen substantially over the past few months. That has happened not so much because savings have diminished as because borrowings have increased. Of course, the savings ratio is a net figure.
The hon. Gentleman said that the only measure that the Government had advanced to encourage savings was an increase in the tax relief for personal equity plans. By far the most effective way of securing an improvement in the savings ratio is an increase in interest rates. We have had a substantial increase in interest rates, which has cut borrowing and encouraged savings. The idea that improved tax relief for PEPs has anything to do with encouraging saving is misconceived. The PEP scheme is about encouraging people to invest in equities. The chances are that there will not be great additional savings because of the tax relief for PEPs, but that because of the relief people will reorganise their investments to take advantage of it.
National savings, of which premium bonds form a small part, are part of the Government strategy to encourage an improvement in the savings ratio. It must be obvious that when the Government are running a large surplus they have rather less need than in previous years to have an attractive national savings package. For that reason, I certainly would not want an improvement in the interest paid on premium bonds. If people are content with the present interest rate, so be it. I agree with the hon. Member for Bridgend (Mr. Griffiths): I do not think that premium bonds are attractive and I, too, would not want to participate in that scheme.
Are premium bonds an investment? The hon. Member for Islington, South and Finsbury described them more than once as an investment. I can see that they are savings from the Government's point of view, because they contribute to national savings. Putting one's money into a premium bond is not my idea of an investment. The game was given away when the hon. Member for Islington, South and Finsbury described buying premium bonds as "having a flutter" and the hon. Member for Bridgend talked about a "type of flutter". That is how people see it.
One not only loses one's stake but gambles on whether one will get a return. If one has only one or two bonds, the chances of getting any return—[Interruption.] It is not an investment. If an investment adviser advised a person to put his money into premium bonds, he might well be guilty of failing to give best advice, as provided for in the Financial Services Act 1986. I am doubtful whether premium bonds are an investment at all, according to the standards by which I judge investments. The chances of getting a return are remote for the person who puts only a few pounds into premium bonds. All that happens is that he sees his pounds devalued by inflation over the years.
Secondly, the hon. Member for Islington, South and Finsbury said that he was worried about the effect of the changes on the small saver, and I understand that. I am not sure that we necessarily want to encourage people to undertake this form of saving. It is a bad investment. I doubt even whether it is a good gamble. It is the best gamble for the person who can afford to put in £10,000. Then one's chances of getting a monthly prize are 11 to 10 —there is nearly an even chance of getting a monthly prize. Over the year, on average, one will receive 10 or 11 prizes, the value of which will vary. Premium bonds are not a good bet for anyone, but they are a better bet for a large holder. For a small holder, they are not a good bet. Perhaps it would be better if we did not encourage people with small sums, which perhaps they cannot spare, to buy premium bonds.
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Thirdly, the hon. Member for Islington, South and Finsbury made a point about the administration of national savings. The Government are right to be worried about those costs. I suggest that the Public Accounts Committee, of which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) is Chairman, might consider those administrative costs. The hon. Member for Islington, South and Finsbury said that some changes have been made recently. I suspect that they occurred because the cost of administering some small accounts did not justify their continuance. The Treasury is right to be concerned about the high administrative cost of small holdings.
We have heard that 1,300 staff are employed to administer the premium bond scheme, and that does not seem unreasonable, given that there are 20 million holders. We have been told that the costs of administration were 1.1 per cent. of the value of the bonds, which probably compares favourably with unit trusts in the private sector. The Public Accounts Committee could usefully consider that issue.
Whether £100 is the right level is a matter for judgment. Usually, in privatisation issues, the qualification level has been rather higher. However, it is true that when the premium bond scheme was introduced in 1957 one needed to buy only one £1 bond. Inflation may well have multiplied that by a factor of 10, but certainly not by a factor of 100.
Labour Members have not advanced sufficient arguments to warrant supporting the new clause. I intend to oppose it.

Mr. A. J. Beith: The hon. Member for Beaconsfield (Mr. Smith) said some very strange things. He said that the purpose of the Chancellor's improvements to the PEP scheme was not to

attract more small savers and to broaden the number of savers. The Chancellor has said that it was indeed intended to extend saving. He has trumpeted the PEP scheme as an illustration of his desire to extend saving and to make it attractive to more people. It is against that background that we must judge this action by the Government as likely to have precisely the opposite effect and to discourage small savers. I am surprised at the hon. Gentleman for casting doubt on some of the Chancellor's motives behind his PEP proposals.
Then the hon. Member for Beaconsfield suggested that, because premium bonds are a poor investment, the only sensible thing to do is to put more, rather than less, money in: whereas the logic of the argument is that, if they are a poor investment, people should not be encouraged to put a great deal of money in them. If the Economic Secretary were to say to me, "I am thinking of putting £5 on a bet that England will win one test before this series is over," I might say to him, "As a mixture of patriotism and a long shot, perhaps you can consider it." If the hon. Gentleman were to say to me, "I will put £100 on the possibility that England will win one test before the series is over," I would tell him that that would be very foolish. The unwiseness of such a speculation would lead me to counsel a small investment only. Those who rightly argue that premium bonds are a pretty poor bet should be the last to suggest that the minimum investment required be increased.
If it is the essence of the Government's argument that premium bonds are not quality savings, there are a number of steps that they could take. They could, for example, allow people to invest much smaller sums and not tempt them to invest large sums. That is the purpose of the new clause, as it was the basis of our arguments in Committee. If it is a bad bet, with an underlying rate of interest of only just over 6 per cent., none of which may accrue to the investor because he might not win a prize, people should not be encouraged to make a high minimum investment.
The Government could take other steps. They could improve the underlying rate of interest, but there is no sign of their doing so because they realise that they are on to a good thing. They are charming a great deal of money out of a great number of people for a very low rate of interest, which most of the investors never even receive. That is a comfortable arrangement for the Government. Indeed, substantial parts of the private sector might wish that they could follow suit.
If the Government believe that investment in premium bonds is poor quality saving that should not be encouraged, they have another option: they could abandon it altogether. Because of the Government's high rate of return, they will not do that, but they could at least stop advertising it and stop sending out direct mail encouraging people to invest in it. The Government are indulging in rather curious double standards. They cannot both condemn the product and try hard to sell it. Indeed, they are trying to sell it more selectively. They cannot be bothered with a £5 minimum investment in premium bonds, but they want to open the door to the few people prepared to invest £10,000. That would allow the Government to offer the service for very little expenditure. They would have a comfortable return for a minimum of effort.
It is unfortunate that the Government's attitude to a £100 minimum investment in premium bonds is characteristic of their attitude to national savings in general. The £5 minimum deposit in a national savings


account was a serious blow to those trying to encourage the habit of saving among young people. Many people simply cannot find £5 at one time. They want the opportunity to save regularly through small sums. The Government's attitude is spreading to all aspects of national savings. If they get away with this proposal, they will probably raise the minimum national savings deposit again and again and shut off many avenues for the smaller savers.

Mr. Arbuthnot: Is not the logic of what the hon. Gentleman is saying that those who have only small sums to invest should not choose premium bonds?

Mr. Beith: I certainly would not advise them to invest in premium bonds. However, as experience has shown that half the population wants to invest in premium bonds, it is not right to make the only way that they can do so be by investing large sums. They may not have very much money and they should be allowed to invest small sums. Indeed, gambling is least harmful when it is neither compulsive nor involves large proportions of an individual's income or disposable resources. The Government are moving in the opposite direction by making one of the forms of investment that comes closest to gambling available only to those prepared to invest large sums of money. They are closing the door against the small saver, and that is particularly unwise with premium bonds.
The hon. Member for Beaconsfield pointed out that the Government do not need to be worried about national savings because their requirements for funds are now significantly lower. The Government have the opposite to a funding problem; they have a budget surplus, so they do not need a great deal of national savings. The hon. Gentleman missed the point about savings. One of the arguments for saving at a time of high inflation, especially with the problems in the British economy during the past 12 months, is that savings divert from consumption. One of the pressures in the economy during the past year has been the consumption of imported goods in the domestic market. It is therefore sensible for the Government to encourage saving.
We want to press the Government on the whole issue of encouraging small savings. If large numbers of people who are not saving could be encouraged to do so, it would have a beneficial effect in the current economic circumstances. The arguments for national savings are not simply those of Government funding; they relate also to the general health of the economy. That applies not only to national savings but to all forms of private sector saving. It is currently in the public interest to encourage saving, even though the Government's need of funding is much less than it was when national savings were first introduced and some of the other savings devices were invented.
Premium bonds are not a good method of saving and I would not recommend them. The Government run the scheme and want to encourage people to participate in it, but only if they put up a large stake. It is little different from replacing a small stake slot machine in a public place with one in which the minimum stake is a very much larger coin—a £1 coin instead of a 20p coin. The likelihood is that that will encourage people to be less prudent when putting money into premium bonds. It is part of the

Government's attitude towards small savers that must be changed for the good of the general health of the economy and the encouragement of more widespread saving.

Mr. Ian Taylor: rose—

Mr. Deputy Speaker (Mr. Harold Walker): I call Mr. Marshall.

Mr. Taylor: You have made an understandable mistake, Mr. Deputy Speaker, but one which I am glad to say our wives do not make.

Mr. Deputy Speaker: I beg the hon. Gentleman's pardon.

Mr. Taylor: I wish to begin by declaring a lack of interest. Having been a premium bond holder for many years, I have yet to win anything and, indeed, can no longer remember where I have put my bonds. That might tell the House something about my character that I prefer not to mention.
Premium bonds were introduced at a time when the Government of the day were searching for any idea that might knock up some savings and help with the national debt. Subsequently, many more sophisticated methods of savings have been developed, not only by the Government but by the private sector. There has been an incredible change in the way that building societies attract private savings. They use many techniques, such as saving on a regular basis correlated with save-as-you-earn option and share purchase schemes. Those techniques have enabled the small investor to put money aside regularly. They provide a much more interesting and, hopefully, fruitful form of investment than premium bonds have ever offered. The original objective of premium bonds, which was to enable the small investor to save simply, is no longer relevant because there are many other schemes through which the small investor can accumulate his savings.
The rate of return on premium bonds is difficult to calculate, so it is increasingly unlikely that they would be recommended by any prudent financial adviser—as my hon. Friend the Member for Beaconsfield (Mr. Smith) pointed out. As the savings market becomes more sophisticated, more and more small savers will be encouraged to put their money into schemes other than premium bonds and there will be a relative decline in interest. Indeed, the Government have introduced new techniques to encourage investment, such as through the employee share ownership schemes which feature largely in the Budget and which involve many workers putting aside sums of money to purchase shares in the companies for which they work.
Those who may not fall within the classic category of small investors are, nevertheless, keen to put aside relatively small sums, and for them the personal equity plans are both interesting and attractive. They answer the needs of small investors and there are major tax incentives for them to adopt those schemes.
Premium bonds are an outdated investment. It would be prudent for the Government to insist on a minimum purchase level because the scheme's administrative costs are high. It is counter-productive if the Government are losing £2 for every £10 subscribed in small units. It does not make sense for the Government to be that profligate on administrative costs. In addition, as I said earlier, if


people wish to have the fun of a gamble, building societies and banks enable small savers to accumulate sufficient money o purchase a batch of bonds.
For all these reasons, the Government are right to consider having a minimum purchase level for premium bonds and the Opposition's new clause asking for more inquiries into the performance and administrative costs of premium bonds is unnecessary. It is accepted by hon. Members on both sides of the House that more people in Britain should save rather than consume and I hope that the Government will introduce more measures to encourage that trend. Future Finance Bills should contain even more incentives for people to put money into PEPs. There should be even more opportunities to reduce the administrative costs of PEPs.
Such schemes, along with employee share ownership, are sensible and desirable objectives for the Government. They should not continue to market premium bonds in small units, as they were originally marketed, which are no longer as attractive as they once were. I strongly support the Government's attempt to reform the area and I shall not support the new clause.

Dr. Lewis Moonie: The contributions of the hon. Members for Beaconsfield (Mr. Smith) and for Esher (Mr. Taylor) are ample illustration of how out of touch Conservative Members are with the feelings of ordinary British people.
Let me at the outset declare an interest. I possess premium bonds—£17 worth of them. They have accumulated over the years but I have not won a sausage. I have never come anywhere near a prize. My mother-in-law has an even smaller holding and she has won two or three times, which shows that a big holding is not necessary in order to make a return.
We should lay the fallacy that premium bonds are a good investment for somebody who is well-to-do and a bad investment for somebody who is poor. As an investment they do not hold water. As a gamble, they do. The return on the money put in is in direct proportion to the number of units bought. The chance of a unit winning is the same whether one has 10,000 or 10. A person who increases his holding from 10 to 10,000 increases the risk 1,000-fold. A holder of a larger number of bonds is more likely to win a prize than the holder of a few, but only in proportion to the number held. Not only that, but inflation cuts into one's money. That is particularly true under this Government when the value of a £10,000 holding for a person who is not lucky enough to win a prize, which could well be the case, will drop by £800 this year, thanks to the Government's excellent economic policies.
The Economic Secretary wrote to me on the subject in June after I made representations to him on behalf of several constituents—not necessarily my supporters—who contacted me about the problem. His comments illustrate the Government's reaction to the scheme. He says:
Like all government departments, National Savings has to operate within a cash limit. So they regularly review their administrative costs to see if sensible economies can be made to make the business more efficient and less expensive to run. National Savings priorities are also affected by the fact that the government is no longer a borrower but is currently repaying debt. Consequently the main need for savings is to refinance borrowings which are due for repayment and to

improve the 'quality' of debt. High quality savings are those which people will retain for some time and cannot withdraw to spend at short notice without any financial penalty.
That illustrates some of the Minister's justifications for changing the scheme.
The Minister went on to say:
Each Premium Bond purchase costs National Savings nearly £2 (a significant portion of which is the fee payable to Girobank.)
The Public Accounts Committee could well look into that to see whether the Government are getting a good deal. The Minister goes on:
So small transactions are very unattractive when National Savings are economising on their running costs.
He goes on to raise the red herring of the average purchase price being over £150, but I grant that he does say that lower levels of purchases account for a far higher percentage of the total number of transactions which, as has been said, is well over 80 per cent. of the savings.
The Minister attempts to justify the increase in the minimum amount by acknowledging that there are those who may find saving up £100 beyond their reach, but he says that he wonders
whether people with only a small sum at their disposal would necessarily find Premium Bonds, which do not offer regular interest but only the chance of prizes, the best place to put their money.
That is the whole point. The person who buys premium bonds is not putting his money away in the expectation of seeing it grow; he is putting it away as a gamble with the hope that he will win a prize as a result. It is a form of gambling, fair enough, which has been legalised or institutionalised by successive Governments over the years. There is no question of the Government stopping it, so far as we know. They claim to be in favour of it in the same way as everyone else, so why debar 85 per cent. of those who purchase small quantities of premium bonds from doing so, turning the scheme into a rich man's club?
It is clear from the Minister's letter to me that he has no concern for the many small investors or gamblers who will be debarred from participation in what is, from the Government's point of view, an ideal savings scheme. After all, it is a long-term method of saving. Despite the fact that people can take their money out when they like, they do not. Like me, they have had premium bonds for as long as 20 years and have left them to gather dust in some corner of a drawer. That is what people do. They do not buy them and trade them in two of three weeks later.
From that point of view, premium bonds are a high quality form of saving. They carry an absurdly low interest rate, particularly under the Government's present inflationary policies which push their real rate of return down to an all-time low. Overall, the scheme is cheap to administer because the costs are one off at the time of purchase. There are no continuing costs of administering accounts as in other forms of saving. It would be much fairer if, when the Minister replies, he were to compare the total cost of administering the scheme with other forms of savings, rather than singling out one detail for comparison.
The Government should tell us what their ultimate intention is. Do they intend to keep the premium bond scheme going or not? Have they looked into alternative methods of purchase in order to reduce the initial cost? Have they compared the overall costs with other forms of national saving? Have they looked at other methods of discouraging early redemption or even charging a fee for


the purchase of bonds, which people might well find an acceptable alternative to debarring them from purchasing them altogether? I suspect that the Government have not.
This is a small matter to those such as the hon. Member for Beaconsfield who have their airy-fairy heads in the clouds. They have no concern for the views of ordinary people and that is why the Government's popularity is sinking faster and faster, week by week. They have a callous disregard for what people think, and ultimately they will pay the penalty for it.

Mr. Arbuthnot: Like the hon. Member for Kirkcaldy (Dr. Moonie), I would cross the road to buy a premium bond. He and I are in the same league. I declare an interest because in about 1981 I bought myself about £10 worth of premium bonds. I have to disagree with my hon Friend the Member for Beaconsfield (Mr. Smith), because that was the best investment that I ever made. I have not won any prizes, but the pleasure that I have had from notionally spending my £250,000 is out of all proportion to the mere £10 that they cost me. I have calculated that, with my £10 worth of premium bonds, I can expect to win a prize within the next 116 years. If the Conservative party remains in government, health care will improve so much that by then I shall be a hale and hearty 152-year-old. I shall not regret that investment.
I bought £10 worth of bonds because that was the minimum investment at that time. If I were making the same decision today I should buy £100 worth. I would increase rather than reduce my saving. The hon. Member for Islington, South and Finsbury (Mr. Smith) mistook my intervention in his speech on that point, although I am sure that he did not do so deliberately. Some people will be unable to afford £100, although luckily, under this Government, they will be fewer than otherwise. Such people should consider whether they should invest in premium bonds in the first place. Perhaps they should consider more sensible investments which would bring them more money, if less imaginative pleasure.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) made an extraordinary speech. He said that people with small savings should be advised not to buy premium bonds but that we should encourage them to buy bonds by making it as easy as possible. It is characteristic of his party, although not usually of him, to advise people both to do and not to do something in the same breath.

Mr. Beith: My advice was simple. People should not buy premium bonds, but if they do, they should not buy many.

Mr. Arbuthnot: I am not sure that I understand that. The hon. Gentleman advises those with the least money to buy premium bonds. My advice to them is that if they are to make the savings that they should try to make, they should make a more sensible investment.
The hon. Gentleman should not ignore the costs of administering tiny holdings such as mine. It is uneconomic to administer my £10 investment. For the Government, mine is a bad investment. While the increase in the minimum investment to £100 is not overdue, it is justifiable and we should support the Government.

Mr. Quentin Davies: There has been a remarkable consensus in the House that

premium bonds constitute a poor investment instrument. If our constituents read Hansard and take our investment advice seriously—which they should not, because we are not registered or competent investment advisers—and if they have any regard for the financial acumen of either major party, they will buy even fewer premium bonds.
At a time when interest rates are rising, the opportunity cost of holding premium bonds, as opposed to other instruments, increases, so logically still fewer people should hold still fewer premium bonds. As a result, it is fair to assume that premium bonds will account for an even lower proportion of total savings than at present. I share the surprise of my hon. Friends that the Opposition feel that it is worth putting so much emphasis on this tertiary issue, whether we are considering fiscal policy or aggregate savings and what can be done to increase them.
Several of my hon. Friends have made the interesting point that, like any other savings instrument, premium bonds have a fixed transaction cost. That cost is the same whether £100, £1,000 £100,000 or any other sum is invested. As it is a fixed cost, for relatively small sums it is a high proportion of the total amount being saved and for larger sums it is a smaller proportion of the total amount and may be insignificant.
Against that background, it is curious that the Opposition oppose the Government's new regulations which establish a minimum amount of £100 for any one investment in premium bonds. If the Government do not make such a regulation, the transaction cost on relatively small sums will be too high a percentage. For example, a transaction cost of £2 on an investment of £10 represents 20 per cent. of the investment. Even if the Government paid no premiums in the form of prizes, 20 per cent. of the sum that they received would go on the cost of registering the purchase of the bonds.

Dr. Moonie: Does the hon. Gentleman agree that the initial cost is paid by the bond holder because the bond is not included in the draw for the first three months after the purchase is made?

Mr. Davies: The essential point is that a fixed transaction cost can be a high proportion of the sum invested when the investment is small. The Government, that is to say the taxpayers, lose out because the cost of raising the money or attracting that proportion of national savings is high. The money does not go to the saver but is simply wasted on transaction costs.
It is extraordinary for a party that aspires to manage this country—heaven help us—to advocate a policy under which the Government and the taxpayers lose money in the course of promoting a particular savings scheme and the saver does not receive that money or enjoy a return on it. There is a high cost to the Government and a low return, and, therefore, a low inducement to save. That is not a rational policy for husbanding the nation's resources. I hope that the Opposition will have second thoughts about that policy and consider whether it is a sensible approach.
What can be done about premium bonds? Can any change usefully be made? Several hon. Members on both sides have suggested a possible answer to that question. Premium bonds are a curious hybrid instrument. They are neither a gambling instrument nor a savings instrument. They are not an effective savings instrument.

Mr. Chris Smith: I have listened carefully to the hon. Gentleman. He has just made the extraordinary statement that premium bonds are neither a gambling nor a savings instrument. Surely they are both.

Mr. Davies: If the hon. Gentleman had listened he would have heard me say that they are neither an effective gambling instrument nor an effective savings instrument. I hope that the hon. Gentleman will not deny that I used the word effective in both contexts. They are an attempt at a savings and a gambling instrument, but they are not effective as either. They are not effective as a savings instrument because the return is not sufficiently high and, as I have already said, at a time of high interest rates the return is particularly unattractive. They will not attract more savings, and—as I have already pointed out—relatively low levels of individual unit investment will not make them very attractive to the Government either, because the transaction cost involved in their issue will be disproportionately high.
Premium bonds are not very effective on either the demand side or the supply side: they neither induce households to save nor attract funds into national savings in a way that is cost effective for the Government. Nor are they effective as a gambling instrument, because they are competing against all the other forms of gambling available to the consumer and are structured in such a way that investors do not lose their stake, which means that the potential reward is much lower. Those who gamble on roulette or the horses tend to think in terms of the sum that they will receive if they win. By definition, premium bonds can never compete.

Mr. Win Griffiths: I admit that I have made a very quick and rough calculation, but it would appear from the figures provided in the answer to which I referred earlier that the amount invested in premium bonds worth between £10 and £50 has increased slightly ahead of inflation over the past few years. That suggests that, at a time when savings have been going down, premium bonds have been a relatively successful way for the Government to raise money.

Mr. Davies: The hon. Gentleman should remember that interest rates, both real and nominal, have risen significantly during the past year, for reasons of which we are all aware and of which many of us entirely approve. I do not think that indices running over a number of years are necessarily relevant to a policy decision that must be made now.
I have tried to demonstrate—and I have not been contradicted on this point, although I have allowed a number of Opposition interventions—that premium bonds probably will not set the markets alight, in either the savings or the gambling sector. They are neither competitive nor a cost-effective way for the Government to raise money from small savers, even if small savers are likely to be induced to invest large sums in aggregate across the country.
What, then, should we do about premium bonds? I have no objection to their remaining, although I believe that, for the reasons that I have given—

Mr. Deputy Speaker: Order. We are now shifting away from that difficult definitive line between the new clause and a general discussion about the premium bond scheme. We cannot engage in the latter.

Mr Davies: I accept that, Mr. Deputy Speaker, but the point raised in the new clause about the minimum amount that is to be available for purchase at any one time itself raises the question whether premium bonds constitute an effective contribution to national savings. In the light of arguments produced this afternoon, I feel that it would be a good idea for both Government and Opposition to give some thought to whether an instrument could be devised that satisfied the gambling instincts of the British public —perhaps a kind of national lottery, in which the investor may lose his stake, but the return—

Mr. Deputy Speaker: Order. I do not think that the hon. Gentleman heard me the first time. I repeat that we are discussing a narrow modification to the premium bond scheme, not gambling, lotteries or the premium bond scheme in general.

Mr. Davies: I hope that I have said enough to demonstrate that if the Opposition have any suggestions to make about the Government's new premium bond regulations—which, surely, can be assumed from their tabling the new clause—they should be thinking along rather different lines. That, surely, is a legitimate observation. The course on which they are embarked is not sensible; nor is it targeted towards either increasing savings or ensuring that a greater proportion of the potential consumer demand for gambling facilities is mobilised to the benefit of national savings and the Government's fiscal surplus. It is also not a very effective way of increasing the return to the small saver.
In my view, the new clause addresses none of those important and legitimate concerns. I should like to think that, before the end of the debate, the Opposition will give some thought to them, and consider making a more valuable contribution.

Mr. Allen McKay: I have been tempted to speak by some of the remarks that I have just heard. We have been presented with what is probably the financier's approach to money—and monetary—matters. I have written to the Minister many times, enclosing letters that I have received which beg me not to allow the Government to change the present arrangements for premium bonds. Our new clause is concerned with the ordinary person's approach to how he should deal with money, how he should save and how he should encourage his children to save, which is probably more important.
I first came across premium bonds when I won £50 in a draw at work. If I had not bought £50 of premium bonds, I would have gone up the road and spent the money. It was very handy to be able to purchase premium bonds there and then, on a whim. I still have them. They were a very poor investment, without a shadow of a doubt: other forms of investment could have made a good deal more. Nevertheless, I had the choice and was entitled and able to deal with it. The increase in the minimum investment from £50 to £100 takes that choice away from many people.

Mr. Ian Taylor: When did the hon. Gentleman make his investment? Allowing for inflation, that £50 could well be worth the £100 that is now being suggested.

Mr. McKay: Inflation is one of the reasons why it was a poor investment. The point is, however, that at the time it was a good one. Spending my potential winnings gave


me a good deal of pleasure, because each month I was sure that it was my turn. That is why one-armed bandits make so much money; everyone lives in hope.
My son had considerable savings from his grandfather, who had two schemes. One was to buy a premium bond, and the other was to keep a savings book. Not only did he show my son two ways of saving money, but he encouraged him to save.
People who gamble do not buy premium bonds. However, the bonds allow grandfathers, such as my son's grandfather, to encourage their grandchildren to save in the manner that they think is best. That is important. The people who wrote to me said that they had very little money to pass on to their sons or grandsons but that they could teach them about the value of money in some shape or form.

Mr. Quentin Davies: Will the hon. Gentleman give way?

Mr. McKay: No, because I know what the hon. Gentleman will say.
I agree that if we want value for money, we should encourage people to invest their money in other ways. However, that is what people have chosen to do. If I told my constituents how to spend their money they would tell me where to get off—and quite rightly so. Those who have written to me want to be able to purchase premium bonds in £10 units. Why should we take that right away from them? Why should we take away from people who genuinely want to purchase premium bonds in £10 units the opportunity to do so for their sons or grandsons, or even for themselves? The Treasury is using a hammer to crack a nut by taking away from people the opportunity to buy £10 premium bonds. The Government should think again.

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Mr. Quentin Davies: Will the hon. Gentleman give way?

Mr. McKay: No. To give the hon. Gentleman his due, financially his arguments are right but morally he is wrong. The Government are saying to ordinary people, "We shall tell you where to put your money." I would not have the arrogance or the cheek to tell people what they should do with their money.

Mr. Arbuthnot: Will the hon. Gentleman give way?

Mr. McKay: No.

Mr. Quentin Davies: On a point of order, Mr. Deputy Speaker. I have not been a Member of Parliament all that long, but am I not right in thinking that a convention of the House is that when one hon. Member refers persistently and critically to another hon. Member he should allow the hon. Member to whom he has referred to reply?

Mr. Deputy Speaker: I have not so far heard anything that is out of order.

Mr. McKay: If I sat down whenever I criticised or was sarcastic about Conservative Members, I should not be on my feet for very long.
The hon. Member for Stamford and Spalding (Mr. Davies) is right as regards finance but morally he is wrong as regards the attitude that is being taken towards the £10

premium bond. We want to give little people the chance to do exactly what they want. However, the Government are steamrollering them into the ground. All that they want to do is to buy £10 premium bonds.

Mr. Quentin Davies: On a point of order, Mr. Deputy Speaker. Do you not agree that for one hon. Member to be accused three times in a speech by another hon. Member of being morally wrong—I repeat morally wrong —is serious and deserves the right of reply?

Mr. McKay: Have you ever had the feeling, Mr. Deputy Speaker, of being harassed? I feel that I am being harassed and steamrollered. About 25,000 people sent me here to represent them and to act as the voice of ordinary people. I shall continue to do that. Small savers in my constituency have asked me to put their point of view, and I intend to do so. The Government ought to have more on their mind than worries about the £10 premium bond.

The Economic Secretary to the Treasury (Mr. Peter Lilley): This has been a fascinating debate, not least because, as my hon. Friend the Member for Beaconsfield (Mr. Smith) pointed out, it has told us about the Opposition's priorities and the general satisfaction that they manifestly felt for the bulk of the contents of the Finance Bill. That is why they have given priority to the precise means by which we make announcements about changes to the value of premium bonds.
The hon. Member for Islington, South and Finsbury (Mr. Smith) began his speech in a statesmanlike fashion by spelling out the history of premium bonds. I shall not, therefore, have to repeat it now, although it may be necessary later to recapitulate their history. The present position has scarcely been mentioned by the Opposition Front Bench spokesman—that the Government are repaying debt rather than borrowing, net, from the public. In such circumstances, it is appropriate for the Government to reconsider their public finance priorities.
Our national savings priorities should be to improve the quality of the borrowing and the way in which we finance debt. That means relying increasingly, where we can, on committed long-term savings rather than on extremely liquid instruments that can instantly be withdrawn, or withdrawn at little cost or loss to the saver, and that therefore are more likely to increase the liquidity of the economy and the level of consumer spending in the economy.

Mr. Chris Smith: If the Economic Secretary is worried about the instant withdrawal of premium bond holdings during the last 20 years, is he able to say whether the pattern has fluctuated during that period?

Mr. Lilley: I cannot do that. However, £300 million was put into premium bonds last year and £134 million was withdrawn. As well as coming in, money goes out. Every premium bond holder has a legal right instantly to withdraw his money. That is what determines the quality of the saving. One can never be sure that the money will not be withdrawn in certain circumstances in large amounts by large numbers of people.

Dr. Moonie: Is the Economic Secretary able to tell me what proportion of the 134 million was withdrawn due to the death of the holders of premium bonds?

Mr. Lilley: I regret that 1 am unable to give that information to the hon. Gentleman. If I find any interesting information during the debate, I shall pass it on to him.
It cannot be disputed that instant access can be had to this money. That has always been a feature of premium bonds and the advertisements refer to it. That must be one of the attractions of premium bonds. A considerable number of people have had small quantities of premium bonds given to them, or have bought small quantities, and have then lost the certificates. We cannot base Government finances on the hope that people will lose their certificates.

Mr. James Couchman: My hon. Friend says that money is put into and goes out of premium bonds at short intervals. Is he able to tell me the average length of holding of a premium bond? I presume that he is basing much of his argument on the volatility of this form of saving to justify his case.

Mr. Lilley: I am sorry that if during the brief period that I have been speaking I have already managed to mislead my hon. Friend. 1 have not said that it is highly volatile. I have said that it is highly liquid, in that everyone has the right to withdraw his money, a right that is not enjoyed with certain other assets. In the management of the Government's debt we are particularly concentrating on encouraging an increasing amount of money to be permanently, or at least for the longer term, committed to savings rather than to easy and ready access. We are not basing it on a particular analysis of the statistical habits of savers. Experience shows that, although money can apparently be stuck in particular forms of saving for quite a long time, there can be considerable outflows in general extension rate money. Our first priority is to improve the quality of the Government's debt. The second must be to reduce the costs. As a number of hon. Members, including my hon. Friend the Member for Stamford and Spalding (Mr. Davies), have pointed out, it costs about £2 per transaction, regardless of the amount of money that is put into premium bonds. Consequently, that must be taken into account when considering the minimum amount that people should be permitted to invest or save in that form.
I have said in the past that only some 12 per cent. of the money raised is in amounts of £ 100 or less. The Opposition have made great play of that and have suggested that I was trying to cover up the fact that about 80 per cent. of the number of deposits is in sums of less than £100. But that is precisely the point. The cost is roughly the same whatever the amount, so 80 per cent. of the cost raises only 12 per cent. of the money. That should not pass without notice by the Department for National Savings and we have duly taken it into account in reaching the decision to raise the minimum amount that anyone can invest in National Savings.
The hon. Member for Islington, South and Finsbury asked whether administrative costs overall were very low. He gave the figure of some 1.1 per cent. of the gross amount invested in premium bonds as the costs every year. That figure is roughly correct, but it is 1.1 per cent. of the total stock invested, not of the amount going in each year. He mentioned the 1,300 staff employed by the Department for National Savings, but quite a lot of additional staff accounting for quite a lot of the costs are employed by Girobank, providing the transaction facilities which

represent a high proportion of the total estimated cost of some £2 per investment. The hon. Gentleman also suggested that the 1·1 per cent. was low compared with unit trusts and other investment media. It strikes me as a not abnormal figure for managing investments. I have seen higher and lower in the private sector. It is only right that the Department for National Savings should be seeking constantly to minimise its costs consistent with providing a decent and fair service.
The hon. Member for Kirkcaldy (Dr. Moonie) asked me to give a comparison of the administrative costs of national savings products. I happily do so. The costs for ordinary accounts are on the high side—about 3 per cent. of the amount invested every year. On the other hand, the costs for savings certificates are at the low end of the scale —only about 0·5 per cent.—and likewise for income bonds. The figure for premium bonds is 1·1 per cent. and for investment accounts it is roughly 2 per cent. So premium bonds are roughly in the middle of the spectrum of the Department for National Savings' costs.
There are plenty of opportunities available to small savers to save their money instead of premium bonds if they do not wish to accumulate £100 before putting money into premium bonds. Those opportunities are provided by the Department for National Savings and in the private sector. There are opportunities for a higher yield, less risk and a better quality in other Department for National Savings products. To mention just one within the Department for National Savings' range of products, amounts as small as £5 can be deposited in investment accounts where the gross rate of interest is 10·75 per cent. There are similar opportunities in building societies, Girobank and so on.
Why do the Opposition believe that there should be made available to small savers in particular a form of savings which is risky, which they have described as gambling or a flutter, when Parliament, in its wisdom, has always seen fit to forbid the private sector to provide any comparable product?
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We have thought it wrong that any private hank, building society or other institution should make available to the general public—large or small investor—any opportunity to invest their money and flutter in the interest that money yields. Are the Opposition demanding that that parliamentary restriction, that prohibition on gambling in interest and offering forms of saving and investment where the investor gambles on whether he will receive any interest, should be available in the private sector? Are they asking us to liberalise the private sector to increase those opportunities? I give way to the hon. Member for Islington, South and Finsbury, if he wishes to reply, before giving way to his more daring colleague.

Dr. Moonie: The Minister and his right hon. and hon. Friends have already provided investors with that prospect in the private sector, in Barlow Clowes, for example.

Mr. Lilley: I shall not comment on Barlow Clowes, but we go to great lengths to ensure the safety of individuals' investments in the private sector. Hon. Members on both sides of the House would wish that to continue. We do not want unnecessary and unwarranted risks to be run by large or small investors, but I still await an answer to my straight question. If it is such a good thing, why do the Opposition still support the parliamentary prohibition on anyone in


the private sector offering that facility to replace the element of it which is being withdrawn by the public sector? I have received no reply, so I must note the inconsistency in the Opposition's argument.

Mr. Quentin Davies: My hon. Friend has set out a sensible case in the most compelling fashion. Does he agree that it is surprising to hear the Opposition advancing specifically the view that financial rationality is fine and desirable when applied to the investments and portfolios of large investors, but somehow does not apply to the small guy? It is particularly shocking to hear that line of argument advanced by what used to be regarded as the party of the people.

Mr. Lilley: My hon. Friend is absolutely right, although I am not quite sure that any of us thought of the Opposition as the party of the people. They have demonstrated a lack of concern in putting forward that argument today about the security, safety, riskiness and yield of small savings by the least well-off savers with the least amount of money available to put at risk.

Dr. Moonie: What is insecure about premium bonds?

Mr. Lilley: The prospect of not getting any return on one's money—that is insecure, and it is the very nature of the asset.
That brings me to risk. In Committee I enunciated with no great clarity the law of large numbers, as I termed it and thought that it was generally known, to the effect that if one invests a lot of money in a risky product such as premium bonds the likely yield has less deviation from the average than if one invests only a small amount. That was disputed by several Opposition Members. My hon. Friend the Member for Beaconsfield stated the position extremely clearly, both in the beginning of his speech, when he put it pithily, and in the numerical examples that he gave of how a large investor will receive a regular series of returns whereas a small investor may receive nothing or a large amount.

Mr. Allen McKay: The Minister is still missing the point on premium bonds. The majority of people I know who have premium bonds bought for them or who buy them themselves only keep them for a short period. Even if they have not won and accepting that they have lost interest, they receive a lump sum which they can invest somewhere else. That is the magic of it. That is what people were encouraged to do.

Mr. Lilley: I will not dispute for an instant what the hon. Gentleman says, although he has blown a torpedo through the point that his hon. Friends were making because they said that the money was never withdrawn or was held for a long period. He is saying that in his and his constituents' experiences the money is withdrawn after a short period.

Dr. Moonie: The Minister cannot tell us whether bonds are held for a long period or not because he does not have that information. However, let us go back to the mythical law of large numbers. I stated clearly that no statistician would disagree that the more bonds held, the greater the chance of winning. However, the amount added for each

additional bond is the same. There is no magical way in which the probability increases geometrically with a larger holding.

Mr. Lilley: The hon. Gentleman referred to the mythical law of large numbers and I saw his hon. Friend the Member for Wrexham (Dr. Marek), who is a distinguished mathematician and probably more so than any other hon. Member in the Chamber and certainly more so than myself, flinch at that reference. The law of large numbers is not a political law in dispute in the House, but part of the way creation has been made. If one has £10,000, the average return each year will differ from the 6+ per cent. average across all premium bonds. The deviation from that average will be smaller than for the little chap who has only £10 or £100. That is the point I was making. If one has only £10, it is all or nothing. For many years there is no return at all, but after 116 years my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) is confident of getting a return. That is what I call a high degree of risk. My hon. Friend may die before then, although I have equal confidence with him in the ability of the National Health Service to keep him alive for that time. My hon. Friend the Member for Beaconsfield made it clear that if one has £10,000 one can expect a prize most months, so the return most years will average roughly 6 per cent. One would not have to wait 150 years before seeing that average achieved.
That is the reason why we do not think that it is a form of investment for the very small investor, investing small amounts which may represent quite a high proportion of savings, that we should go out of our way to encourage and facilitate even to the extent of implicitly subsidising small investors. Those investors are imposing the greatest costs on the system. We do not, therefore, find the Opposition's argument convincing.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) asked why, if premium bonds were such a bad investment, we encouraged people to do more rather than less of such saving. At first sight, he has posed a convincing little paradox. However, there are two points to take into account. First, the return to different investors depends on their tax position. The person who pays no tax will receive only 6½ per cent. on average over the investment, which is the pool that is put aside. Obviously, such an investor could receive more if he invested in a gross product—such as investment bonds which, as I mentioned, provide 10¾ per cent. and on which he would pay no tax. A basic rate taxpayer would get that amount less 25 per cent., which is still more than premium bonds provide. For high rate taxpayers, after paying 40 per cent., 6½ per cent. is not too bad a return. For the high yield taxpayers, it is more attractive—that is why we put an upper limit of ·10,000 on the amount put in. We should not make unlimited tax-free investment opportunities available to the higher rate taxpayer. For the basic and higher rate taxpayers, premium bonds are more attractive than for non-taxpayers and, typically, non-taxpayers are able to put in only very small amounts.
Secondly, the risk in large numbers is less, as I have already said. Anyone putting in a reasonably large amount receives a more guaranteed average amount back over a period of years than a person who puts in a little. The large investor, of course, is better able to look after himself and less a matter of concern for Government than the small, least sophisticated investors. That is why we are happy to


let the bigger investors, who make a reasonable return at reduced risk and at lowest cost to the Government, put in money, rather than encouraging small investors, who are making an inadequate return in respect of their tax position. running a higher risk and imposing the greatest cost on Government. That is a consistent view.
One issue raised in the course of general discussion in the country as a whole is whether we are impeding syndicates from operating and preventing groups of people getting together, as it appears that they have done in various parts of the country, to put in £1 or £10 per week, pooling the risk and sharing the prizes. The Department for National Savings has never given any recognition to unofficial syndicates and makes it clear to any who inquire about running a syndicate that it recognises only the registered holder of the bonds—the individual in whose name they are bought—as sole owner. Nevertheless, the department is well aware that many such syndicates exist and it has never prevented individuals from buying premium bonds on a syndicate's behalf. If members of syndicates are keen to continue to buy premium bonds, I can only suggest that they save up to £100 for each purchase, but for many syndicates that would mean making less frequent purchases, although they could continue to operate.
The Opposition also made an important point about encouraging savings. They said that surely it was important to encourage saving and that surely we wanted to see more personal saving in the economy as a whole. We do indeed, but we are in the happy position where it is not the Government who need to borrow those savings. We want to see savings available to finance the investment boom that industry is currently enjoying. That is why in the Budget my right hon. Friend the Chancellor of the Exchequer concentrated his fiscal incentives on improving the private equity plans to encourage savers to put savings directly into investments in British industry. That is where such savings are needed, as my hon. Friend the Member for Esher (Mr. Taylor) pointed out. We need savings, yes —but Government borrowing, no.
If the Government were to boost the amount put into premium bonds, given their requirement to run up a public sector debt repayment of some £14 billion this year, the more they draw in from there, the more they would have to repay of other forms of saving. It would be absurd for us to encourage a lower quality of saving only to find ourselves forced to repay higher quality forms of saving. That cannot be right and would not be sensible. I cannot think that the Opposition have thought the matter through.
The Opposition's attitude to premium bonds has changed dramatically. When the scheme was first introduced, back in 1956, the then Leader of the Labour party, who is now Lord Wilson of Huyton, talked of Britain's strength, freedom and solvency depending on the proceeds of a squalid raffle. James Simmons said that the Labour party had been built up by appeals to the ideals and high aspirations of our people, and that premium bonds were the very opposite of the Socialist principle of putting service before self. Premium bonds were described as a cheapjack idea, and the Chancellor was urged by Dr. Horace King to reconsider.

Mr. George Howarth: The Minister quoted Harold Wilson, who represented part of my constituency at one time. He was wrong on two counts.

First, Harold Wilson was not the Leader of the Labour party in 1956 and, secondly, he is Lord Wilson of Rievaulx.

Mr. Lilley: I apologise to the House for my two errors. However, Lord Wilson of Rievaulx was wrong far more frequently than I have ever been, and his views as expressed then were in conflict with the views of the Opposition today. I can only suggest that the hon. Member for Islington, South and Finsbury (Mr. Smith) explains this great volte face and tells us why what was described as "a squalid raffle" is now so important that it should be made available to those who are the least well-off, the least sophisticated, have the least tax advantage in taking part and who cost most to the Exchequer if they invest their funds in this way. I cannot believe that there is a satisfactory answer to these questions and I therefore ask the House to reject the new clause.

Mr. Chris Smith: Nothing could demonstrate more clearly Conservative Members' sense of priorities and the sort of world in which they live than the remarks of the hon. Member for Beaconsfield (Mr. Smith), who said that this was a small and trivial matter, and of the hon. Member for Stamford and Spalding (Mr. Davies), who said that this was a tertiary issue. We are talking about a matter that is of interest to the 24 million holders of premium bonds. This matter is far more important to most of them than the entire contents of the rest of the Finance Bill put together. If the hon. Member for Stamford and Spalding wants to find tertiary issues, he need only open the Bill at virtually any page. He will find tertiary issues aplenty in clause after clause of a Bill that is largely composed of such issues. Premium bonds are not a tertiary issue for the many hundreds of thousands of people who are extremely concerned about their future ability to buy premium bonds in quantities that they can afford.
That is the issue at stake in the new clause and Opposition Members make no apologies for introducing it because it deals with a matter of great concern to many ordinary people who have never been, who never will be and who never aspire to be directors of Morgan Grenfell but who are concerned about their ability to do what they want with their money. Those are the people for whom we speak and it is on their behalf that we have tabled the new clause.

Mr. Tim Smith: If Lord Wilson was right to describe premium bonds as "a squalid raffle," why has the price of the tickets become a moral issue for the Opposition?

Mr. Smith: We are talking about individuals' ability to choose what to do with their savings. That is the issue at stake, and I shall amplify that in a moment.
I want to deal with the points of substance that the Economic Secretary raised. I strongly disagree with him about syndicates. Many people get together in informal clubs—usually at the workplace—to contribute a small amount each week towards the joint purchase of premium bonds which are then allocated to the individuals in the club or syndicate. That is a common form of saving and it is very popular. The change that the Government are making acts powerfully against those people's interests, because at a contribution of, say, £1 a week it will now take a long time for each member of such as syndicate to be


entitled to receive a premium bond for his weekly contribution. What is possible now on a relatively short timescale will become much more difficult and take much longer in future.
The principal argument that the Economic Secretary advanced was that he wanted to increase the quality of the Government's debt. He said that the important thing was for the Government to rely for their finances on long-term savings and on money that could not be withdrawn instantly. Yet when we challenged the Economic Secretary about the pattern of withdrawals and accruals to the premium bond account over a period he was unable to give us an answer about the long-term flow and long-term stability of premium bond funds. That is the key. Of course, potentially, premium bonds can be withdrawn instantly. Potentially, every single premium bond held could be withdrawn tomorrow if the holders of premium bonds so wished. But that has never happened and it is very unlikely to happen. It is by the overall pattern over a period that we must judge the stability of the financing available to the Government through this form of savings.
The Economic Secretary also said that there were plenty of other opportunities available to small savers and that by removing the possibility of purchasing premium bonds in relatively small amounts the Government were not removing the possibility of other forms of saving, which the Economic Secretary said, somewhat implausibly, provided a higher yield with less risk. Of course, other forms of small saving present less of a risk, but the potential yield from a premium bond investment—especially the yield from a small premium bond investment —is very great. That is precisely why many people want to purchase premium bonds even if it is only on a small scale.
My hon. Friend the Member for Kirkcaldy (Dr. Moonie) spoke about his mother-in-law, who he said had won two or three times on a holding of less than £17. My hon. Friend described precisely the sort of opportunity of which those who purchase premium bonds seek to avail themselves. People do not purchase premium bonds because they know that they will get a regular return. They do so because they believe that they might, at some stage in the future, turn lucky and win big. That is why people want to save by means of premium bond purchases. The opportunity—the potential—that premium bonds offer them is completely different from that offered by other more regular and more guaranteed forms of saving.
By introducing the change, the Government are removing that opportunity from small savers. The Government are fond of lecturing us about choice and the need for customers to be able to decide for themselves what to do with their money. Here is an opportunity for the Government to allow people who do not have £100 to invest in premium bonds but who want to purchase some none the less because of the opportunity that it gives them to do so. Here is the Government's chance to restore the position that they changed on 1 July and make available to small savers the chance to buy premium bonds in the way that they wish. The Government have removed that opportunity from them. We wish to restore it to them.

Question put, That the clause be read a Second time:—

The House divided: Ayes 195, Noes 266.

Division No. 292]
[6.39 pm


AYES


Abbott, Ms Diane
Grant, Bernie (Tottenham)


Adams, Allen (Paisley N)
Griffiths, Nigel (Edinburgh S)


Alton, David
Griffiths, Win (Bridgend)


Anderson, Donald
Grocott, Bruce


Archer, Rt Hon Peter
Hardy, Peter


Armstrong, Hilary
Harman, Ms Harriet


Ashdown, Rt Hon Paddy
Haynes, Frank


Ashton, Joe
Heffer, Eric S.


Banks, Tony (Newham NW)
Hinchliffe, David


Barnes, Harry (Derbyshire NE)
Hoey, Ms Kate (Vauxhall)


Barnes, Mrs Rosie (Greenwich)
Home Robertson, John


Barron, Kevin
Hood, Jimmy


Battle, John
Howarth, George (Knowsley N)


Beckett, Margaret
Howell, Rt Hon D. (S'heath)


Beith, A. J.
Howells, Geraint


Benn, Rt Hon Tony
Hoyle, Doug


Bennett, A. F. (D'nfn &amp;R'dish)
Hughes, John (Coventry NE)


Bermingham, Gerald
Hughes, Robert (Aberdeen N)


Bidwell, Sydney
Hughes, Roy (Newport E)


Blair, Tony
Illsley, Eric


Blunkett, David
Ingram, Adam


Boyes, Roland
Janner, Greville


Bray, Dr Jeremy
Jones, Barry (Alyn &amp;Deeside)


Brown, Gordon (D'mline E)
Jones, leuan (Ynys Môn)


Brown, Nicholas (Newcastle E)
Jones, Martyn (Clwyd S W)


Brown, Ron (Edinburgh Leith)
Kaufman, Rt Hon Gerald


Buckley, George J.
Kinnock, Rt Hon Neil


Caborn, Richard
Kirkwood, Archy


Callaghan, Jim
Lambie, David


Campbell, Menzies (Fife NE)
Lamond, James


Campbell, Ron (Blyth Valley)
Leadbitter, Ted


Campbell-Savours, D. N.
Lestor, Joan (Eccles)


Canavan, Dennis
Livsey, Richard


Cartwright, John
Lloyd, Tony (Stretford)


Clark, Dr David (S Shields)
Lofthouse, Geoffrey


Clarke, Tom (Monklands W)
McAllion, John


Clay, Bob
McAvoy, Thomas


Clelland, David
McCartney, Ian


Clwyd, Mrs Ann
McFall, John


Coleman, Donald
McKay, Allen (Barnsley West)


Cook, Robin (Livingston)
McKelvey, William


Cousins, Jim
McLeish, Henry


Cox, Tom
McNamara, Kevin


Cryer, Bob
Madden, Max


Cummings, John
Mahon, Mrs Alice


Cunningham, Dr John
Marek, Dr John


Dalyell, Tam
Marshall, David (Shettleston)


Darling, Alistair
Marshall, Jim (Leicester S)


Davies, Rt Hon Denzil (Llanelli)
Martin, Michael J. (Springburn)


Davies, Ron (Caerphilly)
Martlew, Eric


Davis, Terry (B'ham Hodge H'I)
Maxton, John


Dewar, Donald
Meacher, Michael


Dixon, Don
Meale, Alan


Dobson, Frank
Michael, Alun


Doran, Frank
Michie, Bill (Sheffield Heeley)


Dunwoody, Hon Mrs Gwyneth
Michie, Mrs Ray (Arg'l &amp;Bute)


Eadie, Alexander
Moonie, Dr Lewis


Eastham, Ken
Morgan, Rhodri


Ewing, Harry (Falkirk E)
Morley, Elliott


Ewing, Mrs Margaret (Moray)
Morris, Rt Hon A. (W'shawe)


Fatchett, Derek
Morris, Rt Hon J. (Aberavon)


Fearn, Ronald
Mowlam, Marjorie


Field, Frank (Birkenhead)
Mullin, Chris


Flannery, Martin
Murphy, Paul


Flynn, Paul
Oakes, Rt Hon Gordon


Foot, Rt Hon Michael
O'Brien, William


Foster, Derek
O'Neill, Martin


Foulkes, George
Orme, Rt Hon Stanley


Fyfe, Maria
Owen, Rt Hon Dr David


Galbraith, Sam
Patchett, Terry


Garrett, John (Norwich South)
Pendry, Tom


Godman, Dr Norman A.
Pike, Peter L.


Golding, Mrs Llin
Powell, Ray (Ogmore)


Gordon, Mildred
Prescott, John


Gould, Bryan
Primarolo, Dawn


Graham, Thomas
Quin, Ms Joyce






Radice, Giles
Spearing, Nigel


Randall, Stuart
Steinberg, Gerry


Redmond, Martin
Stott, Roger


Rees, Rt Hon Merlyn
Straw, Jack


Reid, Dr John
Taylor, Mrs Ann (Dewsbury)


Richardson, Jo
Thompson, Jack (Wansbeck)


Roberts, Allan (Bootle)
Turner, Dennis


Robertson, George
Vaz, Keith


Robinson, Geoffrey
Wall, Pat


Rogers, Allan
Wallace, James


Rooker, Jeff
Wareing, Robert N.


Ross, Ernie (Dundee W)
Watson, Mike (Glasgow, C)


Rowlands, Ted
Williams, Alan W. (Carm'then)


Ruddock, Joan
Wilson, Brian


Sedgemore, Brian
Winnick, David


Sheldon, Rt Hon Robert
Wise, Mrs Audrey


Shore, Rt Hon Peter
Worthington, Tony


Short, Clare
Wray, Jimmy


Skinner, Dennis
Young, David (Bolton SE)


Smith, Andrew (Oxford E)



Smith, C. (Isl'ton &amp; F'bury)
Tellers for the Ayes:


Smith, Rt Hon J. (Monk'ds E)
Mr. Frank Cook and


Smith, J. P. (Vale of Glam)
Mr. Jimmy Dunachie.


Soley, Clive



NOES


Adley, Robert
Clark, Sir W. (Croydon S)


Aitken, Jonathan
Clarke, Rt Hon K. (Rushcliffe)


Alexander, Richard
Colvin, Michael


Alison, Rt Hon Michael
Conway, Derek


Allason, Rupert
Coombs, Anthony (Wyre F'rest)


Amess, David
Coombs, Simon (Swindon)


Amos, Alan
Couchman, James


Arbuthnot, James
Cran, James


Arnold, Jacques (Gravesham)
Critchley, Julian


Ashby, David
Currie, Mrs Edwina


Aspinwall, Jack
Curry, David


Atkins, Robert
Davies, Q. (Stamf'd &amp; Spald'g)


Atkinson, David
Davis, David (Boothferry)


Baker, Nicholas (Dorset N)
Day, Stephen


Batiste, Spencer
Devlin, Tim


Beaumont-Dark, Anthony
Dicks, Terry


Bellingham, Henry
Dorrell, Stephen


Bevan, David Gilroy
Douglas-Hamilton, Lord James


Biffen, Rt Hon John
Dover, Den


Blaker, Rt Hon Sir Peter
Dunn, Bob


Body, Sir Richard
Durant, Tony


Boscawen, Hon Robert
Evans, David (Welwyn Hatf'd)


Boswell, Tim
Evennett, David


Bottomley, Peter
Fairbairn, Sir Nicholas


Bottomley, Mrs Virginia
Fallon, Michael


Bowden, A (Brighton K'pto'n)
Favell, Tony


Bowden, Gerald (Dulwich)
Fenner, Dame Peggy


Bowis, John
Field, Barry (Isle of Wight)


Boyson, Rt Hon Dr Sir Rhodes
Fishburn, John Dudley


Braine, Rt Hon Sir Bernard
Fookes, Dame Janet


Brandon-Bravo, Martin
Forman, Nigel


Brazier, Julian
Forsyth, Michael (Stirling)


Bright, Graham
Forth, Eric


Brown, Michael (Brigg &amp; Cl't's)
Fowler, Rt Hon Norman


Browne, John (Winchester)
Fox, Sir Marcus


Bruce, Ian (Dorset South)
Franks, Cecil


Buck, Sir Antony
Freeman, Roger


Budgen, Nicholas
French, Douglas


Burns, Simon
Fry, Peter


Burt, Alistair
Gale, Roger


Butcher, John
Gardiner, George


Butler, Chris
Garel-Jones, Tristan


Carlisle, John, (Luton N)
Gill, Christopher


Carlisle, Kenneth (Lincoln)
Glyn, Dr Alan


Carrington, Matthew
Goodhart, Sir Philip


Carttiss, Michael
Goodlad, Alastair


Cash, William
Gow, Ian


Chalker, Rt Hon Mrs Lynda
Grant, Sir Anthony (CambsSW)


Channon, Rt Hon Paul
Greenway, Harry (Ealing N)


Chapman, Sydney
Greenway, John (Ryedale)


Chope, Christopher
Gregory, Conal


Churchill, Mr
Griffiths, Sir Eldon (Bury St E')


Clark, Hon Alan (Plym'th S'n)
Griffiths, Peter (Portsmouth N)


Clark, Dr Michael (Rochford)
Gummer, Rt Hon John Selwyn





Hague, William
Monro, Sir Hector


Hamilton, Hon Archie (Epsom)
Moore, Rt Hon John


Hamilton, Neil (Tatton)
Morris, M (N'hampton S)


Hannam, John
Morrison, Sir Charles


Hargreaves, A. (B'ham H'll Gr')
Morrison, Rt Hon P (Chester)


Hargreaves, Ken (Hyndburn)
Moynihan, Hon Colin


Harris, David
Mudd, David


Haselhurst, Alan
Neale, Gerrard


Hawkins, Christopher
Neubert, Michael


Hayes, Jerry
Nicholls, Patrick


Hayward, Robert
Nicholson, David (Taunton)


Heathcoat-Amory, David
Nicholson, Emma (Devon West)


Heddle, John
Norris, Steve


Hicks, Robert (Cornwall SE)
Onslow, Rt Hon Cranley


Hill, James
Oppenheim, Phillip


Hind, Kenneth
Page, Richard


Hogg, Hon Douglas (Gr'th'm)
Paice, James


Hordern, Sir Peter
Patnick, Irvine


Howard, Michael
Patten, John (Oxford W)


Howarth, G. (Cannock &amp; B'wd)
Pattie, Rt Hon Sir Geoffrey


Howell, Rt Hon David (G'dford)
Pawsey, James


Hughes, Robert G. (Harrow W)
Peacock, Mrs Elizabeth


Hunt, David (Wirral W)
Porter, Barry (Wirral S)


Hunt, Sir John (Ravensbourne)
Porter, David (Waveney)


Irvine, Michael
Powell, William (Corby)


Irving, Charles
Price, Sir David


Jack, Michael
Raffan, Keith


Jackson, Robert
Raison, Rt Hon Timothy


Janman, Tim
Redwood, John


Jessel, Toby
Riddick, Graham


Johnson Smith, Sir Geoffrey
Rost, Peter


Jones, Gwilym (Cardiff N)
Sackville, Hon Tom


Jones, Robert B (Herts W)
Shaw, David (Dover)


Jopling, Rt Hon Michael
Shaw, Sir Giles (Pudsey)


Kellett-Bowman, Dame Elaine
Shelton, Sir William


Key, Robert
Shephard, Mrs G. (Norfolk SW)


Kilfedder, James
Shepherd. Colin (Hereford)


King, Roger (B'ham N'thfield)
Skeet, Sir Trevor


Knapman, Roger
Smith, Sir Dudley (Warwick)


Knight, Greg (Derby North)
Smith, Tim (Beaconsfield)


Knowles, Michael
Speller, Tony


Knox, David
Stanley, Rt Hon Sir John


Lamont, Rt Hon Norman
Stevens, Lewis


Lang, Ian
Stewart, Andy (Sherwood)


Latham, Michael
Stradling Thomas, Sir John


Lawrence, Ivan
Sumberg, David


Lawson, Rt Hon Nigel
Taylor, Ian (Esher)


Lee, John (Pendle)
Taylor, John M (Solihull)


Leigh, Edward (Gainsbor'gh)
Taylor, Teddy (S'end E)


Lester, Jim (Broxtowe)
Thompson, D. (Calder Valley)


Lightbown, David
Thompson, Patrick (Norwich N)


Lilley, Peter
Thome, Neil


Lloyd, Sir Ian (Havant)
Thornton, Malcolm


Lloyd, Peter (Fareham)
Townend, John (Bridlington)


Lord, Michael
Townsend, Cyril D. (B'heath)


Luce, Rt Hon Richard
Tracey, Richard


Macfarlane, Sir Neil
Tredinnick, David


MacKay, Andrew (E Berkshire)
Trippier, David


McLoughlin, Patrick
Trotter, Neville


McNair-Wilson, Sir Michael
Twinn, Dr Ian


McNair-Wilson, Sir Patrick
Vaughan, Sir Gerard


Madel, David
Waddington, Rt Hon David


Malins, Humfrey
Wakeham, Rt Hon John


Mans, Keith
Walden, George


Maples, John
Walker, Bill (T'side North)


Marland, Paul
Waller, Gary


Marlow, Tony
Wardle, Charles (Bexhill)


Marshall, John (Hendon S)
Warren, Kenneth


Marshall, Michael (Arundel)
Watts, John


Martin, David (Portsmouth S)
Wells, Bowen


Mates, Michael
Wheeler, John


Maude, Hon Francis
Whitney, Ray


Maxwell-Hyslop, Robin
Widdecombe, Ann


Mayhew, Rt Hon Sir Patrick
Wiggin, Jerry


Miller, Sir Hal
Wilshire, David


Mills, Iain
Wolfson, Mark


Mitchell, Andrew (Gedling)
Wood, Timothy


Mitchell, Sir David
Woodcock, Dr. Mike






Yeo, Tim
Tellers for the Noes:


Young, Sir George (Acton)
Mr. David Maclean and



Mr. Alan Howarth.

Question accordingly negatived.

Mr. Frank Cook: On a point of order, Mr. Speaker. I turn to you as custodian of the rules of this House. Until this evening I had been under the impression that any hon. Member passing through the Division lobbies had to do so bareheaded. However, this evening an hon. Member passing through the Noes Lobby was wearing headgear. I was able to ascertain the identity of that hon. Member and can vouch for the fact that that hon. Member had every right to be in that Lobby. Indeed, had the hon. Lady been in any other Lobby, that would have been an even greater surprise to me. I ask you, Mr. Speaker, in your position as custodian of the rules, to admonish the Government Whips and to ask them to educate their Members about the proper behaviour of this place.

Mr. Speaker: I am unaware of any rule that says that an hon. Member should not vote with a hat on. In any event, the fact that an hon. Member casts a vote with or without a hat does not invalidate it.

New Clause 7

COMPUTATION OF PROFITS (No. I)

'(1) In computing the amount of profits or gains to be charged under Case I of Schedule D of a bank carrying on a bona fide banking business in the United Kingdom, notwithstanding the provisions of section 74(j) of the ICTA 1988 any debts falling within (2) shall be deductible provided that the provisions of subsection (3) are fulfilled.
(2) Bad debts fall within this subsection if they arise in respect of lending to third world countries, their governments, government institutions or enterprises operating in such overseas territories comprising sovereign risks, and the Board shall issue regulations specifying the countries, institutions and enterprises treated from time to time as falling within this subsection.
(3) The requirements of this subsection are fulfilled if debts which are considered to be bad and for which a deduction is claimed are formally written off, waived or otherwise extinguished such that they are no longer repayable by the debtor.
(4) Subsection (3) shall operate in respect of debts which are partly claimed as bad as though that past debt were a separate debt.'.—[Mr Nicholas Brown.]

Brought up, and read the First time.

Mr. Nicholas Brown: I beg to move, That the clause be read a Second time.
Some Conservative Members, particularly the hon. Members for Beaconsfield (Mr. Smith) and for Stamford and Spalding (Mr. Davies), criticised the last new clause on the grounds of its scope. Although it touched the lives of about 24 million of our fellow citizens, they felt that it was a small matter. The same charge cannot possibly be levelled at new clause 7, which seeks to address the problem of Third world debt—

7 pm

Mr. Quentin Davies: As the hon. Gentleman has explicitly referred to me, I should like to correct his misapprehension. I do not think that he could have been following the previous debate with any attention.
The new clause did not affect the lives of 24 million people who may hold premium bonds. It merely affected the lives of those who wish to purchase premium bonds in

future in individual amounts of less than £100. There is a clear distinction. I am sorry that the hon. Gentleman failed to notice it.

Mr. Speaker: Order. We have finished the last debate; let us get on with the next one.

Mr. Brown: Quite so, Mr. Speaker. If my attention wandered in the last debate while the hon. Gentleman was speaking, I dare say that I was not alone in that.
This debate relates to Third world debt. The proposition is specifically aimed at relating the tax deductions that First world banks seek from their Governments to debt forgiveness in the Third world. We believe that that is in line with the thinking behind the Brady plan, which aims at reducing existing loans to the Third world, if not an outright tax forgiveness. The difference between our proposition and the Brady proposal is best summed up as follows: the Brady plan relies on the voluntary co-operation of the private sector, whereas our proposals directly link tax concessions to willingness to forgive debt in the Third world.
The problem that we are seeking to deal with is vast and has been dramatically exacerbated by the recent fall in the value of Third world commodity sales. For example, debt service ratios for the African continent now exceed 50 per cent. of that continent's export income. The total current account deficit of the African region trebled between 1985 and 1986, with deteriorating terms of trade, low economic growth and outward interest payments far in excess of inward investment.
The problem is illustrated by countries such as Zambia, where the infant mortality rate has doubled since 1980 because of malnutrition. It is also reflected in countries such as Brazil, in which the infant mortality rate fell steadily until about 1980, when the debt crisis hit. Now 40,000 children die each year in that country. About 86 million Brazilians are on the minimum calorie intake, of whom about 30 million receive less than 1,600 calories per day. Yet Brazil is the sixth largest exporter of foodstuffs in the world. It is a disgrace that old debt servicing has meant a transfer of wealth from the south to the north.
The problem in the poorest part of the Third world seems self-perpetuating. Those to whom the money is owed put forward a range of solutions. The first solution which is attractive to them is tax relief from First world Governments for a problem into which they got themselves. When forced to look at other potential solutions they consider rescheduling of debt, bond conversion schemes and even further loans to perpetuate the debt interest cycle.
The financial institutions of the First world are reluctant to consider debt forgiveness. When they do, they want to consider it in exchange for something. They will consider just about any mechanism apart from outright default. In these difficult circumstances for the Third world, it reflects no credit on the Government of the United Kingdom that the volume of the British aid budget has been dramatically reduced. Britain's contribution during these troubled times has been to ensure that the amount that we spend on aid fell in real terms by more than a third between 1979 and 1987. That decrease has been marked in Africa, for which over the same period real aid has fallen by 26·5 per cent. As a percentage of our gross national product, overseas aid has steadily fallen during the 1980s to a pitiful 0·28 per cent. of GNP in 1987. In


those circumstances, it is no wonder that our Government lag far behind even that of the United States in exploring new and constructive solutions to one of the most intractable problems in the world.
The sums involved are substantial, although banks are naturally shy of revealing the total sums that they regard as bad debt. In 1987, Barclays sought to offset about £713 million against tax because of bad debt to the Third world. The National Westminster bank offset a similar amount —£562 million; the Midland offset £1,016 million, and Lloyds, £1,323 million. As a proportion of these banks' total Third world debt we note that Barclays wrote off about 26 per cent. in 1987, National Westminster 23 per cent., the Midland about 25 per cent. and Lloyds about 34 per cent. In other words, the major banking institutions of this country are moving at a fair pace to offset as irrecoverable debts owed to them by the Third world against their tax obligations to the Governments of the First world. The International Monetary Fund estimates that the amount written off globally to Third world countries as bad debt between 1985 and 1988 was $9 billion. That includes only money written off to the 15 most indebted countries, calculated by debt service ratio.
Our contention is that because First world nations bear a public cost because of the private sector banks' irrecoverable debt to the Third world, the public interest should be represented in the way in which the debts are written off against tax. In theory, at any rate, those written off debts constitute a large cost for First world taxpayers. Had those debts not been written off, the major banks' tax liability would have been substantial and would have provided welcome additional income for the Exchequer. Whether that would have happened in practice may be open to question, but that does not undermine the strength of our case. It is surely in the public interest that the poorest countries in the world, crippled with interest payments and a debt burden that they can never meet, are brought back into the world economy in a way that ensures stability and holds out the prospect for real economic growth and steadily increased standards of living.
As these written-off debts have been offset against tax liability, it is equitable that the British taxpayer should insist that the debt be truly written off. That has the obvious advantage of relieving Third world countries even of the theoretical burden of repayment. In short, this is tax relief for debt forgiveness.
It is no part of our case that the new clause should have universal applications. The scope for tax avoidance on a large scale is all too evident. The banks are large and powerful and some Third world nation states are small and vulnerable. We propose a remedy to deal with the present problem. We are not seeking to encourage an extension of the present difficulties or to set up a vast new tax avoidance industry for a Keith committee to deal with in the early 1990s.
The Third world debt problem was clearly not planned to emerge in the way in which it has emerged, and it is in nobody's interest that it should continue. Our remedy is designed to deal with the existing problem. To avoid creating new problems, it may be necessary to set a time limit on the operation of the relief or on the circumstances under which it may be made available. It may be necessary to set that down more specifically in the resolution. Nevertheless, it is the principle that is important. No matter how reluctant the banks, and probably the citizenry

of this country, may be to accept the principle of debt forgiveness, it appears that of all the options open to First world Governments today, and of all the different machanisms that have been suggested for rescheduling, converting into bonds or dealing with the world debt crisis in some other way, by far and away the most effective mechanism is to offset the tax concessions that have been made to the banks against debt forgiveness, and to eradicate at least the current problem once and for all.

Mr. John Battle: I remember some time ago seeing a cartoon that depicted a Mexican peasant, who was faced with a well-dressed American. What was being offered to that Mexican peasant by the right hand of the well-dressed American was a teaspoon on which was written the word "aid". The problem was that the left hand of that well dressed American held that peasant by the windpipe and on the arm was emblazoned the word "trade". That cartoon summed up the position. A teaspoon of aid is offered, but by and large the rich world has the Third world by the windpipe in terms of trade relations. Trade terms are far more favourable to the First world than to the Third world. In recent years it has become clear that trade is not necessarily only in goods but is in invisibles, such as financial exchange. Such trading has increased in prominence in world trade relations.
As my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) said, if we were just to focus on what is in that teaspoon of aid for a few moments and considered our Government's record in the past 10 years, we would find that there has been a dramatic reduction in the volume of Britain's aid contribution in real terms and as a proportion of gross national product. As my hon. Friend cited, it was only in January in a written answer in Hansard that the Government admitted that aid in Africa had dropped by 26 per cent. over the period from 1979 to 1987. Yet this year the Treasury was able to announce that there was a surplus of £15 billion. One month after that answer on Africa the Prime Minister announced:
We now have a higher standard of living than we have ever known. We have a great budget surplus."—[Official Report, 28 February 1989; Vol. 148, c. 154–55.]
I am tempted to set against that another comment that she made in a contribution to a book which was called "Towards One World?" which contained international responses to the Brandt report published some years ago. The Prime Minister said:
It is morally right that those who can should help the poorer countries to help themselves.
The positive strategy of doing that would be one of debt remission, and that would be a contribution that British commercial interests could well afford.
More recently in 1988, the Select Committee on Foreign Affairs recommended that
the aid budget should increase in line with the nation's increasing wealth.
That has not happened, but in the meantime the real problem of trade—the stranglehold of the windpipe—has continued. We are not talking in this debate about industrial capital exchange that is tied up with factories —such as the provision of the processes of production, or agricultural development or provision of infrastructure —but about financial capital. That is the selling of money and turning a profit by charging interest.
I was interested to hear the phrase "recommending debt forgiveness". I am tempted to suggest that we should talk about debt remission, because forgiveness suggests that


there is moral responsibility on the borrower only—it is the borrower who has sinned rather than its being the relationship between the lender and the borrower that is wrong. It is interesting that the charging of interest—that form of financial trade—was frowned upon by many traditions, whether Greek, Jewish or Christian, right through into the 16th century, as being usury. The problem for the borrowers is obviously how they will get the money to pay back the high interest that they promised to pay. In recent times often the answer from the bank has been to lend them more money at even higher rates. In practice, that has absorbed the money that those countries have raised from their agricultural and industrial production.
7.15 pm
On 5 April, I tabled a question on the Brazilian debt to the Foreign Secretary. I was informed that Brazilian debt was to be rescheduled over 20 years at interest rate charges of Libor plus 13 to 16 per cent. That would be an extraordinary way of helping Brazil with its debts, because it would put on it an additional burden.
In that answer I was also referred to table 15 of the Bank of England Quarterly Bulletin, which lists all the Third world debts to the United Kingdom-registered monetary sector institutions and all their branches and subsidiaries. I recommend that hon. Members read that bulletin, because it shows that in Britain banks have some £14 billion owed to them by the least-developed countries. Britain is the world's largest debt holder after the United States of America.
One of the contributors to the World Bank report, which was published just a month ago, was the editor of The Economist. In a review of the World Bank report in The Economist, he said:
Because of this lack of savings, they"—
Third world countries—
need foreign capital to build up their productive investment. In principle, that sounds fine. It makes economic sense for a poor country with good growth potential to borrow abroad. But foreign borrowing can be risky. In the 1980s many poor countries ran into crippling debt troubles because they had borrowed too much in earlier years, and because exchange rates and interest rates moved against them.
That is the context in which Third world countries have been borrowing.
The IMF in September 1987 issued a statement celebrating five successive years of growth in the world's economies, but I would have to say that that was unequal development and growth, because in that same period there was an escalation of the debt crisis wreaking havoc on the economies of the debtor nations. In other words, I would suggest that the successes of the industrialised countries have come about on the backs of the developing ones, whose incomes in real terms have declined by 30 per cent. in that period.
The injustice is that we now have a world in which the poorest countries are subsidising the wealth of the richest countries. That may seem a far cry from representing our constituents in Britain, but if we apply it a little more particularly, it appears that the credit card boom in Britain today is built on the backs of the interest repayments to our banks by the Third world countries. All their foreign

exchange is being used to service those debts. The revenue that they earn on export sales has to be returned to United Kingdom and United States banks.
Since 1982 the poorer countries of the south have regularly transferred in excess of $30 billion to their rich creditors in America and Britain. Last year that transfer rose to $43 billion. In other words, it absorbed more than 5 per cent. of the entire gross domestic product of some of the world's most impoverished countries. Brazil, which owes $110 billion in foreign debts, is the world's largest debtor nation after the United States. Brazil pays 10 per cent. of its gross national product in interest on its debts. We must ask how on earth Brazil can restructure its economy, agriculture and industry, so that it can tackle issues such as the wasting of its resources by selling wood from its rain forests, which Brazil must do to enjoy the export earnings that will allow it to repay its debts to banks in Britain and America.
Mexico's foreign debt totals more than $100 billion, or 25 per cent. of its gross domestic product, yet Mexicans earn an average of less than one dollar per hour. They would have to work for 100 billion human life hours to repay Mexico's debt to the rich world. Developing countries have managed to sustain their debt repayments only by cutting imports, squeezing consumption and cutting back on public expenditure. Consequently, per capita income in Latin America has fallen by 10 per cent. since 1982 and investment has collapsed. Michael Manley commented some time ago that for a developing country to make progress in such conditions is like trying to climb up an escalator that is moving down.
The price of adjusting to the debt crisis has been borne primarily by the poor, which is reflected by increasing levels of poverty, malnutrition and infant mortality. My hon. Friend the Member for Newcastle upon Tyne, East referred to the 40,000 children who die each year in Brazil. In reality, they are paying Brazil's debt repayments with their shortened lives. Commodity prices have dropped dramatically in the last decade. In the past few days, the failure to settle the international coffee agreement has caused the value of coffee crops to fall daily. Countries that depend on such crops suffer not only a lack of export earnings and of economic growth but enormous debt burdens. Argentina owes about $35 billion to commercial banks and has paid about $100 million in interest since April of last year. Yet Argentina is already $3 billion in arrears with its interest payments.
One of the privileges of being a Member of Parliament is that one meets representatives of many other parliaments. Recently, I had the honour to meet visitors from Ecuador, who explained that that country could not repay its debt interest because Ecuador is dependent largely on its oil revenues to do so, and they asked how many British Members of Parliament knew that the recent earthquake in Ecuador broke oil pipelines and reduced the country's revenue. Ecuador is now two years behind in repaying its $6 billion debt. Peru has made no repayments since 1985 and has a $5 billion debt.
Until recently, of the Latin American countries having the largest dollar debts, Mexico, Colombia and Chile were able to maintain their repayment commitments. However, in the last week the international financial press has reported that Brazil has stopped making its debt repayments on 4 July because it can no longer afford to service it.
There have been two suggestions for dealing with the Third world's debt problems. The first is rescheduling debts but in practice that only means new loans that will worsen the problem in the long term. The second suggestion is that the countries concerned should default. However, in practice when non-payment occurs, it dries up credit and the countries involved are put on an international credit blacklist so that they cannot make any further progress. Last March, the United States Treasury Secretary, Mr. Nicholas Brady, devised a plan to tackle the debt crisis through a complex programme of so-called voluntary debt relief measures. Banks were urged to exchange existing debts for other assets such as equity in Third world countries or Government bonds at lower interest rates. To sweeten the pill, those bonds were said to be guaranteed by the World Bank and by the International Monetary Fund, to reassure banks that future repayments would be honoured.
It was envisaged that the World Bank and the IMF would provide Third world Governments with resources to finance the proposed debt equity swaps. In practice, with Third world debt being traded at less than half its value, and with private banks having undertaken massive provisions to cover themselves against losses, it seems absurd that Third world Governments should now be required to meet their past obligations in full. The reality of the situation was dramatically illustrated when, in Argentina recently, the Brady initiative was marked by violent rioting against austerity measures intended to met the IMF's repayment conditions.
As to the measures taken by the banks to cover themselves against losses, the Financial Times reported this week that the Bank of England is reviewing its credit scoring system for British banks to cushion them against possible loans to debtor countries. Known as the central bank matrix system, it is based on whether the borrower's interest payments are up to date and on whether the country has an IMF programme—and a country that does can score highly on the matrix. The system is also used by the Inland Revenue as a guide to the provision that should he made for tax allowances against such borrowings. The difficulty is that those provisions are too limited, so that proposal has not taken off. The matrix system itself is holding banks back from changing their approach.
To return to the Brady proposals, the Bush Administration has been concerned for some time to establish a coherent international debt strategy, because the debt crisis is viewed internationally as posing a threat to the United States security interests overseas. The fundamental flaw in the Brady proposals is that they do not tackle the central problem of funding future developments and of securing new lending. Four years ago, the Baker plan was scuppered precisely because of the inability of Governments to persuade commercial banks to provide new funds for future developments. Although one must prevent new loans from being siphoned off to pay interest on previous loans, debt relief alone will not solve the problem. Halting the transfer of resources from the southern to the northern hemisphere does nothing to bring about long-term development.
At current interest levels, the $70 billion debt reduction proposed by Brady will save developing countries only $2·3 billion per year in repayments. To make a significant impact on the current negative transfer of resources, a realistic strategy of debt remission is needed. It is worth remembering the Monday last October when the stock

exchange collapsed and $100 billion was wiped off share values. That showed that the concept of debt remission is not an impossibility or an impracticable option. Banks —particularly in Britain—can afford to write off debts.
In reply to a recent written question from my hon. Friend the Member for Oxford, East (Mr. Smith), the Economic Secretary to the Treasury made it clear that the Third world debt crisis is over for the United Kingdom banks, as the money they have on loan to developing countries is now only one third of what it was five years ago as a proportion of the banks' capital. Loans to highly indebted Third world countries were 65 per cent. of the high street banks' capital last year. In 1984, the figure was 179 per cent. In other words, if all the Third world borrowers defaulted simultaneously, British banks would not be made bankrupt. Therefore, they are in a position to do something about Third world debts. Meanwhile, they refuse new loans to Third world countries.
In the past year, the Economic Secretary's figure of 65 per cent. could have been reduced to 44 per cent., if allowance is made for the banks' own provisions against bad debts. The figures clearly show that substantial debt reductions can be afforded by British banks.
John Denham, an international debt expert, wrote in this month's issue of the magazine published by the World Development Movement:
Broadly speaking, they"—
the banks—
could waive a third of developing country debt without incurring further losses.
Meanwhile, as was said by my hon. Friend the Member for Newcastle upon Tyne, East, the burden of foreign debt servicing remains. Argentina alone owes the Midland bank £2·9 billion, Lloyds bank £2·3 billion and Barclays bank £1·2 billion. Despite the Brady proposals, commercial banks have been reluctant to make the necessary concessions to debtor countries, although those banks have been in their healthiest state for years. Even in America, there has been talk of resorting to legislation to force the banks to be more forthcoming.
Large-scale debt cannot be addressed by suggesting further indebtedness. It requires structural solutions to increase resource flows from the north to the south and to improve the productive capacity of Third world economies. Our new clause provides an incentive to encourage banks to write off their debts to developing countries and contribute positively to enabling Third world countries to move towards sustained growth. The debt crisis cannot be contained by indefinite tinkering and rescheduling of old debts.
The Brady proposals do not go far enough. If the new clause is accepted, it will enable the Government, at the meeting later this week of the economic summit in Paris, to present a practical example of how countries in the rich world can restore basic justice in relationships between the north and the south.

Mr. Tim Smith: I share the concern expressed by Labour Members about the debt burden of Third world countries. There is no doubt that the cost of servicing the debt has become so great that it is often crippling and subsumes a large proportion of the revenue of less developed countries. We should examine every way of securing a situation in which they are relieved of a large part of the cost of servicing their debt.
I welcome the initiative taken by my right hon. Friend the Chancellor of the Exchequer to reduce the debt burden of the poorest countries in sub-Saharan Africa. I also welcome the initiative taken by Treasury Secretary Brady —to which the hon. Member for Leeds, West (Mr. Battle) referred, even though he felt that it did not go far enough. Such initiatives are welcome and can help. I understand that we are close to reaching an arrangement to help Mexico, which is one country with large debt burdens hanging over it.
The hon. Member for Newcastle upon Tyne, East (Mr. Brown) cited the figure for the four clearing banks in 1987. Not only the clearing banks, but the Export Credits Guarantee Department had to write off a great deal of debt, which will in due course fall directly on the taxpayer. I am not clear precisely how the new clause will help the less developed countries and I am concerned about the underlying taxation principles. I see no justification for treating one category of debtor differently from another.
For tax purposes, we say that a person can have tax relief if he has a bad debt on his hands and there is no prospect or considerable doubt about the prospect of recovering the debt. It is not sufficient to make a general provision—one must specify the debtors for which one is making the provision. Tax relief is not automatic even then, because the Inland Revenue will consider carefully the provision made. We can take it that the Revenue has done that in the case of the clearing banks, although my hon. Friend the Economic Secretary cannot tell us about the specific position of individual banks because that would breach taxpayer confidentiality. My point is that it does not necessarily follow that, just because a bank makes provision in its accounts, it necessarily gets tax relief.
I understand, and have considerable sympathy with, the arguments advanced by the hon. Member for Newcastle upon Tyne, East. Why would it be right to make a distinction between debtors who happen to be less developed countries and all other types of debtor to banks or any other trading concern? What practical help would the new clause give less developed countries?

Mr. Nicholas Brown: I tried to deal with that point towards the end of my speech. I have said that this is a specific measure designed to deal with a specific and unique problem. The hon. Gentleman has asked what help the new clause will give those nations. The answer is that it will free them of the obligation to pay continuing interest on their debt or to repay the capital sum. The debt will be written off, or forgiven. It will no longer exist.

Mr. Smith: I see. It is a hypothetical position and there is not much point in debating whether it will happen. The assumption is that the banks will adopt the proposals in the new clause, take the tax relief and permanently write off the debt. Obviously, the hon. Gentleman thinks that that will happen if we accept the new clause and that that is the right thing to do.
Although I have considerable sympathy with much of what has been said, I have doubts about making distinctions between categories of debtors. Unlike the hon. Member for Leeds, West, I believe that anyone who has borrowed money—I do not care who it is—has a moral obligation to repay it. Perhaps it was wrong to lend those countries the money in the first place. If the banks felt that

there was no prospect of the money ever being repaid, perhaps that was not the right commercial judgment to make, but I should not like the new clause to give the signal that there was no obligation to repay the debt, because that would not be the right signal to give. Although I have considerable sympathy with the motive behind the new clause, I have doubts about whether it would be wise to adopt such a distinction in practice.

Mr. Beith: There are specific reasons why it is a reasonable and wise proposition that there should be some remission of debt to Third world countries. Much of that reasoning lies in the prospects for any stable economic development of those countries, which are wholly destroyed by the interest rate burden that they are now carrying, and the prospect of a future world financial and trading system in which they can readily participate. It is unrealistic to treat developing countries' debts as though they were the same as the banks' other bad commercial debts at home. We are talking not about individual companies that may have gone or may go bankrupt but about countries and peoples, many of them in grinding poverty.
What is most alarming about the Third world debt position is that, from the narrow point of view of the western nations, the problem is much less serious than it was, but from the perspective of those living in the countries with the heaviest debt, the problem is as serious as it ever was. The fact that the danger to us seems to be receding suggests that it will be addressed with decreasing urgency. So long as it was seen to be a serious problem for the Western nations and their banks, it was regarded as something about which nations had to get together and worry. I am alarmed that the more it seems that the West no longer has a problem, the less the issue will be addressed when it is still so alarming for those who live in Third world countries.
The Chancellor said:
The danger of a systemic collapse of the banking system has been averted".
That must be so. There is plenty of evidence to show that the exposure of the banks has been dramatically reduced. Net financial flows to the Third world have fallen from $67 billion in 1982 to $16 billion in 1988. The commercial banks have been substantial beneficiaries of that collapse. Although their cash exposure has increased, their exposure as a percentage of equity has been halved over the same period. We have negative financial flows to the Third world. We have an outflow of funds that is financing the economic development of the western world at the expense of those countries most desperately in need of sustainable development.
The new clause seeks to deal with the position of the commercial banks, which in the United States and in Britain have already benefited substantially from official sources. Most new lending between 1983 and 1987 was from official sources such as the development banks—for example, the International Monetary Fund—and during that time about one third of the interest payments made by highly indebted countries was covered by new lending. There was an S18 billion public sector subsidy to the banking sector because the new lend was actually paying for the interest on the old loans—certainly 15 per cent. of the interest on loans held by commercial banks.
That new lend from development banks and other official sources has reduced the banks' share of the


indebted countries' foreign debt from 67 per cent. to 56 per cent. The percentage involvement by commercial banks in Third world debt has been reduced by substantial public sector intervention. In most creditor countries, the banks have received some sort of tax relief on their provisions against Third world debt, even though the loans have not been cancelled or written down. In some cases, the loans continue to be serviced in full. The commercial banks are emerging reasonably comfortably from what at one time appeared to be a dangerous position. Following considerable public sector aid, the world banking system appears to be capable of surviving all the debt problems. However, the Third world nations and their peoples are still suffering from the enormous burden of interest payments and they have no prospect of debt repayment.
We should be seeking ways to involve commercial banks, through the public sector, in various forms of debt remission, related—as some inevitably will be—to structural adjustment and changes in policies, as has happened as a result of the IMF's activities. It must be part of the Government's programme of measures to involve the commercial banks more closely in debt remission.
The new clause is a genuine attempt to achieve that aim. If the Government can suggest a better way, we should be interested to hear about it. What we want to hear today is that the Government are prepared to get together with commercial banks to seek the remission and cancellation of a significant part of the debt burden.

Mr. Quentin Davies: I am rather concerned about the Opposition's evident intellectual muddle in proposing the new clause to the House. It might be useful if I threw a little light on at least three of the Opposition's major confusions. The first confusion forcibly to strike anyone reading the new clause is that of terminology. It suggests that debts
for which a deduction is claimed are formally written off, waived or otherwise extinguished such that they are no longer repayable by the debtor.
The implication is that all three options are either progressions of the same thing or more or less equivalent, yet in reality they are quite different concepts. To write off or write down a loan is to decide, in all prudence, that it is sensible to make a provision because it is likely that all or part of the loan will not be recovered, at least on the terms on which it was originally lent. As my hon. Friend the Member for Beaconsfield (Mr. Smith) said, it has been this country's sensible system, where a bank or any other business makes a specific provision that can be justified as the sort of prudential provision that a business should make, that the Inland Revenue accepts that as a reduction in taxable profit.
That is different from waiving or extinguishing a loan. Waiving means that a claim on the borrower is forgone by the lender. The lender could easily decide to write down a loan and provide against it without that making the slightest difference to the force of his claim on the borrower. That is a vital distinction which is blurred by the clause. Indeed the way that the clause is drafted implies that the draftsman was not even alive to that essential distinction.
Even more serious than the confusion of terminology is the Opposition's moral confusion. The best example of that was shown by the hon. Member for Leeds, West (Mr. Battle), who objected to the phrase "forgiving debts" on the ground that the implication was that the borrower had

incurred some moral obligation when he first took out the debt. The hon. Gentleman thought it iniquitous that a borrower should have any moral obligation.

Mr. Battle: I wish to correct the hon. Gentleman. I objected to the word "forgiveness" because it implied that the moral obligation was only on one side and that no reference was made to the fact that the lender could also have moral obligations, which might include the rate at which he lends money.

Mr. Davies: Any lender has the considerable obligation of prudence. Where the lender is a bank, the shareholders and depositors of which are the general public, the directors have an important fiduciary responsibility. I do not mind conceding that a number of major banks made serious professional errors in the 1970s in the lending policies that they pursued in the Third world and elsewhere. None of that in any way reduces, and must not be taken to do so, the moral obligation of any borrower— whether a country, a corporation or an individual—that is assumed when the debt is undertaken, a loan agreement signed or a bond issued. It is morally dangerous, as well as potentially carrying the most unfortunate and damaging practical consequences, if there is for one moment any doubt about that fundamental principle.

Mr. Dennis Turner: Does the hon. Gentleman accept that the many millions of people who would be affected by the new clause cannot read confused terminology? They are interested in the way in which they have to lead their lives, and they are living in great poverty and deprivation. The debate is about human beings and about how Britain, as a rich country, can help the poor, struggling countries. What are the hon. Gentleman's suggestions about ways in which we could respond positively to the problems that we both know exist in such countries?

Mr. Davies: Within the constraints of order, I shall deal with the hon. Gentleman's points later in my speech.
If we are at all serious about this matter, the House should accept that it is absolutely fundamental that anyone who takes on a debt incurs a moral obligation to repay it and to conduct his affairs in a way that, as far as is possible, puts him in a position to repay that debt. If we forget that principle we not only do a disservice to lenders, but do a terrible disservice to borrowers because we undermine one of the vital mechanisms by which resources are cycled from savers to borrowers or from surplus countries to deficit countries. The consequences for humanity of undermining or seriously damaging that mechanism, which would happen if we accepted the Opposition's argument, are incalculable.
That is not the end of my story because a third and important confusion has been displayed today by the Opposition, and that is an economic confusion. It is a confusion in properly identifying the different economic interests.
The burden of the argument advanced by the hon. Member for Newcastle upon Tyne, East (Mr. Brown) in support of new clause 7 was that as the taxpayer incurs a cost when banks can reduce their taxable profits by virtue of provisions against bad debts that are accepted by the Inland Revenue, the taxpayer should have some countervailing benefit which would be that the debts


would be forgiven—to use the phrase which the hon. Member for Leeds, West dislikes. In other words, that implies that there is some conflict of interest between banks and the taxpayer in how those debts are to be treated if they are written down, and whether the claims on the borrowers are waived.
The Labour party's position is that there is such a conflict of interest. I put it to the House seriously that there is no such conflict of interest, because the taxpayer shares exactly the same interest as the depositor or shareholder of a bank in maintaining the claim. If that claim can ultimately be made good and the debt is ultimately serviced and repaid, not only can the bank write back that amount to profits, but those profits will be taxable and the taxpayer will gain his full due proportionate benefit in due course. There is that fundamental error in the Labour party's position and it is important that the debate should not proceed without its having been identified.
I am not insensible of the need to think carefully about how we can better structure the capital flows in the world, including the capital flows between the OECD area and the Third world. There is no question but that in contrast with previous periods there was a greater distortion in those capital flows in the 1970s which led to many of the problems with which we live today.
The period before 1914 was characterised by substantial net capital outflows from the developed countries to what we would now call the Third world—Latin America, Asia, the Russian empire and so on. In contrast to that period there was an extraordinary phenomenon in the 1970s when almost the total sum of capital flows went through the banking market and virtually none went in the form of private debt through the bond market or through the equity market in the form of direct industrial investment or portfolio flows. That was a distorted flow and it means that the Third world has had a distorted portfolio of indebtedness and the OECD countries have a distorted portfolio of Third world assets which is in the interests of neither party.
What does one do about that.? One creates conditions in which it is possible for deficit countries to exploit other forms of capital, particularly to attract private debt to the bond markets and equity flows in the form of direct investment or portfolio flows. A small number of Third world countries have achieved that. Malaysia and South Korea are pertinent examples. They have not only thrived and prospered—they have been models of economic success—but they have not had the problems to which we are referring today and have not had to write off any of their bank debt.
The remedy is there. It is important that we make it clear to Third world countries that the solution largely lies in their hands and that if they create the conditions in which those flows are attracted a great deal of the problem will automatically be solved. But there is one thing that we shall not do. We shall not do a good day's work for the Third world, for investors in Britain or for the future prosperity of the globe if we live in the Alice-in-Wonderland world of financial illusions and make-believe which the Labour party currently appears to inhabit.

Mr. Max Madden: On a point of order, Madam Deputy Speaker. The hon. Member for Stamford and Spalding (Mr. Davies) made a number of

references during his remarks to conflicts of interest and other remarks that were relevant to banking. I note from the Register of Members' Interests that the hon. Gentleman is a consultant to Morgan Grenfell, merchant bankers. Would you confirm, Madam Deputy Speaker, that the entry in the register in no way lifts the obligation on hon. Members to declare a relevant interest during the course of their remarks? I hope that in future the hon. Gentleman will make clear his direct interest when contributing to debates such as this.

Madam Deputy Speaker (Madam Betty Boothroyd): I confirm that it is for an hon. Member to declare his interests. I am sure that if the hon. Member for Stamford and Spalding (Mr. Davies) has such an interest to declare he will do so on a future occasion.

Mr. Quentin Davies: I have declared an interest on many occasions, including in Committee. The fact that I was a director of Morgan Grenfell until fairly recently, and am now a consultant to the firm, was referred to earlier this afternoon. Therefore, it seemed otiose to refer to it again lest it was interpreted as a plug for a particular financial institution.

Madam Deputy Speaker: I am sure that the House is much obliged.

Mr. Tam Dalyell: It often happens in the House that hon. Members preface their speech by saying that they hope that they will be excused if they do not follow the previous speaker. I should like quietly to follow the hon. Member for Stamford and Spalding (Mr. Davies). I listened intently to his speech and I shall send a copy of it in Hansard to Morgan Grenfell to ask whether it represents its point of view. It is a matter of some seriousness if some of the great merchant banking houses in Britain share that view. I know merchant bankers who are a great deal wiser than the hon. Gentleman and who understand the desperate situation in South America that we are often talking about.
My hon. Friend the Member for Leeds, West (Mr. Battle) raised the question of morality and he received a legitimate, sensible and calculated answer from the hon. Member for Beaconsfield (Mr. Smith). It happens that I believe in a degree of fiduciary responsibility, because otherwise the world does not work. But is not there an obligation on the part of lenders? When some institutions in the West were awash with money much of the lending to Brazil was irresponsible.
I had the good fortune to go to Altimera, at my own expense, with Friends of the Earth, and then to talk to people in the Brazilian Government. Like the hon. Member for Beaconsfield. I speak with some knowledge. Is it responsible for the West to lend huge sums of money for nuclear power stations? I happen to be unashamedly pro-nuclear, but it is not acceptable for us to lend enormous sums for power stations that do not work. The three power stations between San Paolo and Rio, one of them made by Westinghouse and the other two basically by Siemens, are not working properly. That is no way to treat Brazil with its problems.
If we do nothing, the result will be simple—the rain forests will go. It is no good talking about keeping the rain forest if we adopt the general attitude of the hon. Member for Stamford and Spalding that we cannot have our cake and eat it.
We must be clear about the view of Morgan Grenfell. I want to ask the Economic Secretary a direct question. It so happens that when I was in Brasilia a lunch was given by the excellent British ambassador, Michael Newington, physicist and many other things, for Kit McMahon, an old friend of mine from the Bank of England in the 1970s when he used to brief me for the budget committee of the European Parliament. Let me say openly in the House that I think that he has been greatly attacked, as has Jeremy Morse, for being "callous" about the rain forest. I am sure that, in his personal capacity, Kit McMahon is as concerned about the rain forest as I or any other Opposition Member—as is Jeremy Morse. I criticise neither the chairman of Lloyds bank nor the chairman of the Midland bank.
8 pm
I should, however, like to ask the Treasury a question. On his return from Brasilia, Kit McMahon talked at some length—if not to Ministers, at least to officials—about practical ways of alleviating the debt problem. He had been accompanied by senior debt advisers from the Midland bank. My first question is, what has been the result of the McMahon mission? Is there anything that the House can be told?
As a result of the initiatives of the hon. Members for Wycombe (Mr. Whitney) and for Gravesham (Mr. Arnold) and other officers of the Latin American parliamentary group, I met over lunch—and subsequently —the Ecuador ambassador, Senor de Correa. My hon. Friend the Member for Leeds, West gave a striking example of the results of the many earthquakes in the area: after one of them oil pipelines were cut, and it became difficult to repay the debt.
This is my second question: have the Government any contingency plans for what might be called "hiccups", when for one reason or another it becomes difficult to pay debt in the short term? It is the old moratorium problem. Unless we do something, there will be a simple consequence: the Japanese will give Ecuador money for fishing round the Galapagos Islands, with terrible consequences to the ecology of that unique archipelago.
Incidentally, we should understand that the huge Green vote in the European elections did not necessarily represent an endorsement of every aspect of Green policy. It was about something else; it registered a general unease about the problems described so excellently in "The Fragile Earth" and other programmes on all four main television channels.
My third question is this: is the Minister able to report on the success of the mission to Brasilia undertaken by the Minister for Overseas Development—the Patten mission? As one who has secured Adjournment and Consolidated Fund debates on rain forest problems, I am led to believe by what I read and hear that the Minister did extremely well in Brasilia. I happen to share the view of a leader in The Times that the way to go about such matters is through quiet diplomacy. If a British Minister has done well, I feel that it is up to Opposition Members to say so. That is my view until such time as the Minister can report back in detail.
I should, however, like to know under what Treasury guidelines the right hon. Gentleman reached last week's agreement. I say that as one who was invited by the Foreign Office Minister—as were a number of others—to

meet the British ambassadors to South America when they were in London last month. They were extremely cognisant of the problem.
That brings me to my fourth question, which concerns the Paris summit. What will be the Treasury's view of the general concept of debt-for-nature swaps? The Times leader of 6 July, quoted so approvingly by the Prime Minister at today's Question Time, states:
Brazil's own newly-minted environmental scheme for the Amazon, launched last April under the nationalistic slogan `Our Nature', has been widely criticised as a public relations exercise. It includes new forest reserves and nature parks, forest guards, and a much-needed new soil map, and has temporarily suspended subsidies for logging and ranching. Land reforms are proposed to encourage small farmers to settle in the more fertile scrublands of central and west Brazil.
But the funds to match the plan are lacking; and it was accompanied by cuts in the budgets of the two major Amazon research institutes. Brazil's difficulty in servicing its foreign debt, underlined again this week by its formal notification of delays in payments to its creditors, ought to make possible some form of debt-for-environment deal.
What is the Treasury's view?
I know that there are constraints on time, and this is my last question. Treasury Ministers, along with many other people, will know about the long articles on the Brazilian rain forest that have appeared in The Sunday Times. I—like, I suspect, a number of my colleagues—wrote a detailed letter to Sir Peter Walters. BP has always been extremely helpful to me; I represent one of its big units in Grangemouth, where many people work. I should like to ask the Treasury about an aspect of the reply to my letter. I think that this is in order, as it directly concerns the World Bank.

Madam Deputy Speaker: Order. It is indirectly related, but as I am sure that the hon. Gentleman is about to conclude his remarks, I shall allow him to do so.

Mr. Dalyell: It is difficult to scrutinise the actions of the British director of the World Bank in the House although I do not criticise him personally. Presumably he acts under Great George street instructions.
Item 2 of Sir Peter Walters' reply states:
'The mining company says the total directly cleared for open cast mining sites is 13,500 acres', whereas, `an expert employed by the World Bank and surveys by the Brazilian forestry service estimate that as much as 250,000 acres has been adversely affected'.
BP replied:
The area of the Jamari National Forest is 215,000 hectares (531,000 acres) in which Jacunda's mining rights cover 59,500 hectares (147,000 acres) about 28 per cent. of the Forest. The area of land cleared for operations, including mining, access roads, housing and caring for the workforce and their families, is 4,500 acres, less than 1 per cent. of the Forest; depending on the season, a further 2,500 to 7,000 hectares are flooded areas to provide water for the operation. These figures have been confirmed by the forestry service, IBAMA.
As we have so far been unable to contact Marc Dourojeannie, the World Bank authority cited by the Sunday Times, we cannot comment on the basis of his calculations, or his statement on the area being 'affected', but if they are intended to apply only to the Jacunda project they are simply incompatible with the scale of this operation.
As the Treasury is the British Ministry responsible for World Bank actions, I am entitled to ask for a considered reply from the Treasury—although obviously I cannot expect an answer tonight—explaining what instructions it has given our own executive director of the World Bank about the controversy between Sir Peter Walters and BP on the one hand The Sunday Times on the other.

Mr. Lilley: Hon. Members on both sides of the House have expressed concern about the burden of debt, including servicing debt, placed on many underdeveloped countries. The question we must consider is whether the new clause provides an appropriate way of dealing with the problem. As my hon. Friend the Member for Beaconsfield (Mr. Smith) correctly and lucidly spelt out, the existing law already relieves all bad debts from taxation, whether they are owed to sovereign Governments or commercial entities, and no distinction between the two is made.
In practice, new clause 7, which grants relief when a debt to a sovereign third world country is cancelled, would add nothing to the existing law. It would be neither a relief nor, as it stands, a restriction of a relief. It would simply reaffirm part of a relief that is inherent in the law as it stands.
The debate is circling around new clause 8 which, for technical reasons, has not been called. New clause 8 would limit tax relief in respect of other bank loans to Third world countries which have not been cancelled. The question is whether the new clause would help. It is obviously intended to encourage the cancellation of Third world debts to banks, but it would discourage new lending by banks to Third world countries. Banks would be unlikely to enter into new loans with Third world countries if they knew that, in the event of failure to repay, tax relief would not be made available to them, as it is when they make provision for expected repayments in their dealings with sovereign countries or commercial companies. We should be creating a disincentive to banks to engage in new lending to underdeveloped countries. That would be good. A resumption of new lending by banks to underdeveloped countries is vital, where appropriate, and where confidence exists. That is part of the reason for the so-called Brady plan and the encouragement of moves along those lines by the Group of Seven. We should like the burden of servicing existing debt to be alleviated and new lending to be resumed by commercial banks to large debtors. I cannot therefore recommend either new clause 7 or new clause 8, although I recognise the entirely benevolent intentions of the Opposition in tabling them.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) said that the effect of Government lending and of the lending by international financial institutions had enabled the underdeveloped countries to repay their interest on commercial debt to commercial banks and that it had amounted, therefore, to a subsidy to the banks. He is saying, in effect, that Government aid goes not to underdeveloped countries but by a circuitous route to banks. It was an interesting attempt to undermine the case for Government aid to underdeveloped countries. According to that analysis, none of it reaches underdeveloped countries.
My hon. Friend the Member for Stamford and Spalding (Mr. Davies) rightly pointed out that banks have a fiduciary responsibility in the running of their affairs both to their shareholders—the people . who ultimately finance the provisions that are made against bad debts —and to their depositors and that it is right that they should behave responsibly and recognise their duties. We welcome the fact that the worst phase of the debt crisis has passed. It poses much less of a threat to the world financial system than it did because banks have built up provisions, at the expense of their shareholders, to enable them to finance the bad debts on their books. We do not believe

that it is wrong that in meeting the tax law requirements they should enjoy tax relief on those provisions against bad debts. It is accepted that people should not pay tax on profits that they have not made. If we were to deprive them of tax relief on the provisions that they have made against genuine bad debts, we should be taxing them on profits that they have not made. That could not be in the interests of the banking system, depositors and the many shareholders who ultimately are the owners of the banks.

Ms. Diane Abbott: I am grateful to the Minister for giving way because I was not here during the earlier part of the discussion on the new clause. The Minister says that the worst part of the debt crisis is over. It may be over for the European banks, but for Third world countries, which are under the hammer of the International Monetary Fund, the worst part of the debt crisis is yet to come. The debt crisis is not just about making life easy for western European banks; it is also about social and political conditions in Third world countries. Does the Minister agree that banks which made unwise loans to corrupt and illiberal regimes should not get a tax rake off from the taxpayer?

Mr. Lilley: I hope that the hon. Lady is satisfied with making that rather pedantic point. I said that the worst threat to the international financial system is over. I accept that the real concern of the House, as I began by saying —perhaps the hon. Lady was not in the Chamber even then—relates to the poverty burden that has been placed on underdeveloped countries. I gave up five years of my life to working on aid programmes in underdeveloped countries, so I know considerably more about it than perhaps the hon. Lady does. Therefore, attempts to prove that she is holier than the rest of us carry little weight.
Our contribution to the well-being of indebted countries takes a number of forms. My hon. Friend the Member for Beaconsfield paid tribute to the fact that my right hon. Friend the Chancellor of the Exchequer took a leading part in what became known as the Toronto terms agreement, under which sub-Saharan African countries —those most heavily indebted and whose debts are primarily to Governments—have had their loans converted into gifts by the creditor companies, while the servicing costs of non-aid loans have been reduced. That has been a major achievement of British diplomacy. A number of countries are already benefiting from that international agreement.
It is vital that we should also encourage the renewed flow of private capital from developed countries to underdeveloped countries—not least equity capital. Since we abolished exchange controls, the flow of private capital from this country to developing countries has exceeded that of all the other member states of the European Community put together and amounts to many billions of pounds. [Interruption.] When equity capital is invested by developed countries in developing countries, it increases considerably the wealth of those countries—[Interruption.] The hon. Member for Hackney, North and Stoke Newington (Ms. Abbott), who knows absolutely nothing about trade, chooses to demur.

Ms. Abbott: rose—

Mr. Lilley: The second way in which this country can help developing countries is by opening up the prospects for free trade. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) said that we give aid with one hand and take it back via trade. Nothing could be further from the truth. By opening the markets of developed countries to the products of developing countries we are benefiting them. [Interruption.] The whole House must surely welcome that. [Interruption.] Unless the hon. Member for Hackney, North and Stoke Newington has anything novel to say on the subject, I shall not give way to her.
We also want to encourage, by means of aid provision and any technical assistance that we can give to developing countries, the development of their own economies so that they will be able to prosper on their own without having to rely on aid. [Interruption.] Does the hon. Lady wish to intervene or just to continue to chatter?

Ms. Abbott: I am grateful to the Minister for giving way because, as he says, I was not here during the early part of the debate. However, is he aware that 3 per cent. of the gross domestic product of developing countries flows not from us to them but from them to us?

Mr. Lilley: If the hon. Lady had been here during the early part of the debate she would have known that that point had been agreed by all the parties. She has not contributed to the debate by intervening and making that point now.
Having taken the initiative in the case of the sub-Saharan African countries—the most impoverished and the most indebted countries whose debt is primarily to Governments—our concern now relates mostly to middle income debtors. Their debt is, by and large, with the commercial banks. It is therefore up to them, in consultation with the commercial banks, to reach arrangements to their mutual benefit to enable those countries satisfactorily to service debts, where appropriate, for the banks to recognise that debts may have to be written off, to reschedule or reduce the burden of those debts and, above all, to try to open the way to renewal of lending. That is the way forward, but it cannot be achieved by the Government manipulating the tax system, and for that reason I urge the House not to accept the new clause.
The hon. Member for Linlithgow (Mr. Dalyell) asked a lengthy list of questions. Obviously I shall have to write to him, but I hope that he will clarify his second question asking me whether I am aware of the hiccup problem and the fact that it could well lead to Japanese fishermen going round the Galapagos Islands. I shall need considerable clarification before I can answer that question, but I shall do my best.
I urge the Opposition to withdraw new clause 7 which fails to achieve what they sought, and would simply create a disincentive to new lending by banks to underdeveloped countries, which the whole House wishes to continue.

Mr. Nicholas Brown: The Economic Secretary's style in the House seems to be deteriorating. He seems to be modelling himself on the Chief Secretary to the Treasury, and I cannot commend that. As I understand his summation of the debate, the decision to borrow money carries great moral obligations which can never be redressed, yet the decision to lend does not. We do not accept that proposition. Nevertheless, the Economic

Secretary was right in discerning that our heart was really in clause 8 which has not been called. Therefore, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 9

SCHEDULE E: BENEFITS IN KIND

'(1) Section 154 ICTA 1988 shall not apply to any benefits facilities or expenditure falling within subsection (2) below.
(2) This subsection applies to the bona fide provision of workplace nurseries of other creche facilities which are made available generally to the children of employees at a location on a basis that such provision would not have the effect of conferring benefits wholly or mainly on directors of companies or on those employees who are in receipt of the higher or highest levels of remuneration.'.—[Mr. Chris Smith.]

Brought up, and read the First time.

Mr. Chris Smith: I beg to move, That the clause be read a Second time.

Madam Deputy Speaker: With this it will be convenient to discuss new clause 11—

Tax Relief for nursery care—

'(1) For the purposes of the Tax Act 1988, section 154, there shall be excluded from a charge to income tax of a benefit in kind any benefit arising from an employee from the provision by the employer of nursery care facilities to any children under 5 of the employee, provided only that such nursery facilities are available to employees of the employer generally.
(2) An employee making payments for nursery care in respect of any of their own children under 5 shall be entitled to claim, as a deduction qualifying for basic income tax relief only, any payment made in this regard up to a limit of £45 per week per child.
(3) For the purposes of the above clause, an employee is defined as a person who works 25 hours a week or more, excluding meal breaks.'.

Mr. Smith: On 11 April, the Home Office issued a news release from the ministerial group on women's issues headed:
Choice and high standards are the key to the provision of childcare".
It emphasised how important the Government believed the provision of good quality childcare was. The Minister of State, Home Office, the hon. Member for Oxford, West and Abingdon (Mr. Patten), said:
Employers also have a significant part to play—using the tax reliefs available to them, to provide childcare facilities and to attract skilled mothers who have chosen to return to work in a time of demographic change.
That point was emphasised later in the press release. One of the points in the five-point plan announced by the Government to assist women to enter the work force was:
Further encouragement to employers to use the tax reliefs available to provide childcare facilities.
To ram the point home even further, the Minister of State, Department of Education and Science said:
These initiatives are a significant contribution in developing the provisions of childcare.
That news release demonstrated clearly that the Government have hit on the extremely important principle of supporting the provision of good childcare facilities by employers at the workplace. But by their actions the Government are fundamentally undermining the principle they purport to uphold. For a start, there is very little incentive in the tax system—and very little take-up by employers—to provide workplace nurseries. The offsetting


of workplace nursery provision against corporation tax liability involves, among other things, a long-term commitment which many employers are reluctant to make.
The crucial drawback to providing workplace nursery provision is the tax on the deemed benefit that a parent receives when placing a child in a subsidised workplace nursery. Since 1985, the Inland Revenue has regarded the taking up of a subsidised nursery place as a benefit in kind. The subsidy has to be added to the income for income tax computation, provided that the total of income plus deemed benefits is at least £8,500. The tax on workplace nursery take-up acts as a powerful disincentive to parents with young chidlren, especially mothers considering taking up employment when the changing demography of the work force means that we should be encouraging rather than discouraging women from taking up work.
There are about 100 workplace nurseries in the United Kingdom. The main providers tend to be local authorities and health authorities. It is estimated that as few as 20 companies in the private sector provide workplace nurseries. One honourable potential exception to that is Midland Bank plc which is proposing a large-scale development of between 200 and 300 workplace nurseries. If that goes ahead, the bank will deserve considerable credit, but the current figure of 100 workplace nurseries throughout the country is far too low. It demonstrates first the need to ensure that the provision of workplace nursery space is increased, and secondly that the income to the Exchequer from the tax which the Inland Revenue imposes on the deemed benefit is minimal.
On the need to increase provision, Britain is currently one of Europe's poorest providers of childcare facilities. We should be developing a pattern of provision in which employers certainly have a part to play alongside local authorities and voluntary organisations. Most of Europe and the United States have no tax on workplace nursery provision. The tax discourages employees from taking up workplace nursery places and employers from providing workplace nurseries. While the tax exists for the potential beneficiaries, employers will be much more reluctant to establish workplace nurseries. The tax acts as a discouragement to the provision of workplace nurseries, and removing the tax would assist.
As for the income to the Exchequer, every time I have asked the Financial Secretary by means of parliamentary questions for information about how much money accrues to the Exchequer as a result of the tax on the deemed benefit of workplace nursery provision, the answer is that the Government do not know. The figure is so small that the Government are unable to compute the benefit to the Exchequer. That makes nonsense of the argument that the Inland Revenue has occasionally deployed and, in particular, deployed in a letter of 4 May to the Workplace Nurseries Campaign, in which it set out what I presume is the Government's policy on the matter. It said:
The Government recognise both the contribution to the economy of women with children and the importance of making the best use of their skills in the future.
So far, so good. The Inland Revenue sensibly made an important point.
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However, the letter continues:
But they believe that it is better to encourage those mothers who wish to work to do so by reducing tax rates and

increasing personal allowances rather than by providing special exemptions which tend to narrow the tax base and drive tax rates up.
We know that the income from the deemed tax on nursery workplace provision is minimal. How on earth can it be assumed to narrow the tax base and drive tax rates up? The Government and the Inland Revenue ignore the fact that it is possible both to follow the pattern that the Government themselves wish to set on tax rates and personal allowances, and to take the step for which we argue and remove the tax on workplace benefit. There is no fiscal or financial excuse for the Government to keep this tax in place.
When the Government initially brought in the measures to tax workplace nursery provision, they argued that it would be a tax only on the benefits of the high paid. They set a threshold of £8,300, about which one might have had queries even at the time. That figure is now equal to roughly the average working woman's wage. It is hardly a threshold which means that only the high paid end up having to face this tax. It is a particular irony that one can be liable for workplace nursery tax at the same time as receiving family credit because one's income is too low for the needs of the family.
One specific example has been drawn to my attention by the Workplace Nurseries Campaign. The single mother in question works in Leicester and uses the Leicester city council workplace nursery. She has monthly outgoings of £62 in nursery fees, £50 in nursery tax, £140 in mortgage and £23 in rates. Even with the addition of £32 a month family credit, she is left with less than £40 a week to feed and clothe herself and her four-year-old child. The fact that the Government can with one hand take away £50 in the workplace nursery tax and with the other hand give £32 a month in family credit makes a nonsense of the tax which the Government seek to continue by rejecting new clause 9.
The workplace nursery tax causes hardship in many cases. The Government argue that taking up workplace nursery provision is a perk or benefit, like a company car. But nursery provision is completely different from that. It is an essential, necessary and insurmountable provision, which not only enables a woman to take up work, but has to be available before she can even contemplate being able to do so. One cannot say the same about the great majority of people who benefit from a company car. If the Government want to use the argument about perks and benefits, why do they not extend the workplace nurseries principle to subsidised canteens, sports grounds or aspects of pension provision? All those are tax free and are not subject to the same provisions as workplace nurseries.
What about the security provisions of clauses 50, 51 and 52? It is right that those clauses should be included because they are sensible and justifiable measures. However, the same principle that applies to the essential provision of security measures should apply to the essential provision of workplace nursery space for women who need to avail themselves of that space to enable them to go to work.
For many years, the Labour party has argued that the workplace nursery tax should be removed. In moving new clause 9, we seek to achieve precisely that. The tax causes hardship, it discourages women from seeking work and it provides a disincentive for enlightened employers seeking to establish good workplace provision. The workplace nursery tax should have been scrapped years ago and we


are offering the House a chance to do so, at long last, today. It brings in a minimal income to the Exchequer and acts as a powerful disincentive to women, with young children, who are thinking of going out to work. We should be encouraging them, not discouraging them with an extra burden in tax. The Government claim that a nursery place is a perk; it is not. It is an essential facility to enable women to play a full part in the economic life of our nation. There is no such tax in other European countries or in the United States and there should not be one in Britain.

Mr. George Walden: I am rather puzzled by the speech of the hon. Member for Islington, South and Finsbury (Mr. Smith). I will not support his point because it is far too timorous. We do not need workplace provision for children; we need nursery education for all. I am surprised to hear the hon. Gentleman speaking in a rather technocratic way, which suggests that the Labour party is losing its radical impetus and, perhaps, its broader vision.
I also have an ideological objection to what the hon. Gentleman said. It is not the function of employers to look after the dependants of employees. The answer to the problem he raised is much broader. We should have high-quality nursery provision for all. It is rather typical of the hon. Gentleman that at no point did he mention the function of that dreadful, anonymous word "provision". I am concerned not with child care, but with educating children and doing something productive for a child's development, rather than merely looking after a child in some "caring" mode.

Mr. Madden: Will the hon. Gentleman give way?

Mr. Walden: No, because I am going to speak very briefly.

Dame Elaine Kellett-Bowman (Lancaster): Will my hon. Friend not give way even to me?

Mr. Walden: How can I refuse?

Dame Elaine Kellett-Bowman: Is my hon. Friend aware that in the teeth of opposition from Lancashire county council we have opened a gorgeous nursery provision in our local Skerton county primary school? The county council which is, of course, Labour-controlled turned the scheme down two years ago. However, as a result of the pupils themselves putting the case forcefully and the parents' support we obtained the wonderful provision for which my hon. Friend is now speaking.

Mr. Walden: My heart is warmed, but not overflowing. I remember defending the Government record, which was creditable, when I was an Education Minister. Provision had risen from 17 per cent. to 42 per cent. over about 10 years and that sounded fine. Fortunately, no one ever asked two basic questions. The first was that if nursery provision was so good, why was it not available to everybody? People could have asked me why it depended on where a child lived. Secondly, there was the question of the quality of nursery provision. I would not spend a penny piece, to paraphrase an hon. Member, on low quality "caring" child care.
We should spend as much as we possibly can on high-quality, educative nursery provision for all. We have 42 per cent. nursery provision, and it is extremely patchy. Some of it is amateur and some of it consists of play care. Some of it is very good—I have seen some very good

nursery schools run by local authorities—but the fact remains that in Britain we have only 42 per cent. provision. whereas in France the figure is 97 per cent. That may account in part for the generally higher quality of the behaviour of children in French schools and the generally higher quality of their educational attainment.
We frequently see in the newspapers touching photographs of Princess Diana taking her children to nursery school. She is setting a splendid example, but there are an awful lot of people in this country who will never have the money to buy private nursery education and there are an awful lot of places where nursery education is not provided by local authorities. Having briefly served in Government, I have the disadvantage of being a realist. I know that such provision costs a lot of money. Indirectly, the Government are already spending about £400 million on local provision. If we are to double nursery provision, therefore, we are talking about a figure of about £1 billion.
I do not expect the Government to give me the assurance that I should like to hear. Clearly we shall have to be extremely careful about public expenditure in the short term. Having said that, I do not understand the Government's argument—which, as a loyal supporter, I naturally had to advance—that nursery education is an excellent thing, but that it should not be available for everyone.

Mr. Beith: The hon. Member for Buckingham (Mr. Walden) has underlined the case supported by members of all parties for more widespread nursery education. We had hints of such support from the Prime Minister in her earlier guise as Secretary of State for Education, but since them nursery education has slipped further and further down the list of priorities.
The question of such provision is an important part of the background to the new clause. The first and main argument for providing nursery education is that it is in the interests of the children themselves. In many cases, their subsequent school career can be greatly enhanced by a year or more of nursery education.
The second compelling reason for such provision is to be found in current demographic trends in Britain. It is obvious that in many areas it will be impossible to recruit sufficient people of the necessary skill and ability into industry and the public service if more opportunities are not provided for women to take employment, and that cannot be done without nursery provision.
The third argument in favour of nursery provision concerns rights and opportunities for women. Quite apart from the labour shortages of the future, we should remember that many women feel prevented from developing their potential in employment and serving the community, whether in the public service or the private sector, because of lack of nursery provision.
I support the proposals in the new clause, but, as the hon. Member for Buckingham said, they are somewhat timid and lacking in radicalism, as they do not go beyond the concept of the workplace nursery, which at the moment accounts for a minuscule proportion of nursery provision. Workplace provision has actually shrunk. I can remember when there was at least one workplace nursery in my constituency, but it is no longer there.
Perhaps the new clause will lead to some enlargement of workplace nursery provision. That would be a good thing and would be of benefit, as people would then be able to take advantage of workplace provision without suffering a


tax disadvantage. But the new clause is unlikely to answer the needs of large numbers of women who want to work, and it will make no difference to those on low incomes who have access to workplace nurseries at present.
The hon. Member for Islington, South and Finsbury (Mr. Smith) said that the average woman's wage was £8,500 a year. That took me by surprise. The hon. Gentleman must have looked at the figures more recently than I have. If that is the average women's wage, I can tell him that not many women in my constituency are earning the average. A great many of the women who might use workplace nurseries do not fall into the category of people who would enjoy a tax benefit from the provisions of the new clause. That is not an argument against the new clause; it simply shows that much remains to be done if we are to make a significant advance in the provision of nursery facilities.
The new clause will do nothing for the numerous people who now have to buy nursery provision or child care because they do not have access to workplace nurseries. Many people are in that category and they will remain in that category because workplace nurseries would never answer all the needs, even if provision were miraculously extended to every large place of work. For many women, it is neither convenient nor appropriate to take a child away from the local environment where friends and family may be able to help at the end of the nursery school day. And such provision is clearly not appropriate in jobs where there is no single large workplace in which to provide such facilities.
My hon. Friends and I have argued for a wider provision, designed to afford some tax relief to those who are buying nursery education or child care and to enable them to remain in employment. The relief would, of course, be confined to those in employment.
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Before the Government rush to attack the idea of using the tax system to provide such a benefit or subsidy, they must remember that in this Finance Bill they are extending tax relief to private health care for pensioners on the basis that that is immensely socially desirable. The provision of some tax relief for those needing nursery care for their children if they are to work is not only socially desirable; it will become ever more urgent over the next few years as acute labour shortages arise in some major industries in the public sector.
The arguments extend beyond the proposals in the new clause that my hon. Friends and I have tabled, as the need for provision extends beyond the age of five. There are strong arguments for greater child care provision for those of school age—for example, in the school holidays and between 3 pm and 6 pm, when many women have to work if they are to remain in employment. In the years to come we must consider how we can make adequate provision for good child care that is beneficial and educative to the children concerned and enables women to take employment.
The new clause would relieve a tiny number of women of a tax burden. That is no bad thing, and I welcome it. It may enhance somewhat the attractiveness of workplace nurseries and I shall be pleased if it does that, too. Nevertheless, it represents a very small step in terms of

providing nursery care for the children of women who want to work and providing child care for a larger number of children.

Miss Ann Widdecombe: I, too, shall be brief, because I realise that there is a lot of interest in this subject.
I think that the Government have taken the right line. All sorts of complications will arise if we adopt the proposals of the hon. Member for Islington, South and Finsbury (Mr. Smith) or the hon. Member for—[HON. MEMBERS: "Berwick-upon-Tweed."] Not only did I forget the constituency of the hon. Member for Berwick-upon-Tweed (Mr. Beith), but I have forgotten the name of his party. Both proposals would cause more anomalies than they would solve.
If we say that a workplace nursery is not a perk and therefore should not be taxed because it does not confer benefit, we shall immediately create an anomaly. There are those who, because of the nature of their work, do not and never will have access to workplace nurseries. Is it fair that one group of employees should get free child care, which is what it would amount to, while another group of employees who do not have access to workplace nurseries still have to pay for them? If we broaden the matter and say that the answer is tax reliefs on child care in general, whether it is provided in workplace nurseries or whether people make their own arrangements, we create another anomaly. Do we still extend tax relief on child care to mothers who are not working but who nevertheless employ help for their children and, if not, why not? Can child care be administered in two completely separate tiers? There are important practical difficulties in doing what the Opposition wish.
Additionally, the principle behind the Government's reasoning is right. There are many crucial matters in deciding whether a woman goes out to work, and child care is but one of them. It is not the only crucial, essential point that a woman will consider when deciding whether to work. There is the obvious cost of getting to work. I have never heard this disputed, but that should certainly be regarded as the employee's responsibility, whatever distance the person has to travel to get to work.

Mr. Win Griffiths: The hon. Lady must know that many large companies provide free buses as a matter of course to take their work force to work.

Miss Widdecombe: That is if the employer rather than the employee is remote. If the employee decides that it is worth incurring a large cost to commute over substantial distances to get to work, regardless of the incursion into his wage packet, that is very much his own concern. The same applies to company cars. The hon. Member for Islington, South and Finsbury (Mr. Smith) said that by no means could company cars be compared with child care. However, in some instances, company cars are essential for the work to be done.

Mr. Chris Smith: The hon. Lady must have misheard me. I said clearly and specifically that in a majority of cases company cars are a genuine perk. There are, of course, some forms of employment in which a company car is a necessity, and I would class those cases somewhat differently.

Miss Widdecombe: Nevertheless, even if a company car is essential, to a certain extent it is still regarded as a perk.
I cannot believe that the hon. Gentleman has never had representations on that point. 1 have certainly received many representations from people who are being taxed on their company cars and who go into great detail explaining why and how their cars are not a benefit but a necessity. It is an absolute necessity for me, when employing office secretaries, to have a typewriter. If I choose to buy one rather than hire one, I still pay the tax on it because it is deemed to be a benefit. All sorts of essential items—child care may be one—are not entirely free of tax.
Where do we stop if we say that it is essential that a woman receives tax benefits on child care if she is to go out to work? If she is allowed to receive tax benefits on the care of her youngest child, why should she not be able to claim that if she has to go out to work for long hours—the normal work time, with only four weeks' holiday a year —she requires additional domestic help? Should that not be regarded as a perk? That question must be answered.
It seem very worthy to say that we want to encourage women to go back to work and that we should either remove the tax on workplace nurseries or, possibly, give tax reliefs if other arrangements are made, but it raises all the other essential points associated with a woman going back to work. In Committee there was a long discussion about advancing tax benefits up to a certain sum, but never was it taken into account that one would then benefit those who did not go out to work.
Also I am concerned—I am perhaps not very concerned at this stage, but I could become very concerned—that if we give tax reliefs or remove something that has been regarded as a perk we shall actually direct employers, and employees for that matter, towards a certain method of getting women hack to work. There are many ingredients involved in getting women into work. Child care is but one. Flexible working practices is another. I do not want to see child care tax benefit become available in such a way as to make flexible working practices or other possible alternatives second-rate choices so that false pressure develops for one particular form of benefit.
The hon. Member for Berwick-upon-Tweed referred to another problem. He asked whether we were talking about the under-fives. Surely if we expect mothers to work, we are talking also about older children—certainly those up to secondary school age. If we are to have a proper system of child care, nannies must also be taken into account. Their position is different. It is not a matter of a mother taking a child to work with her and taking it home at night. It is a matter of the child being collected and put somewhere for two hours to be looked after and collected again. That is a different system. Will that attract tax advantages? What about that as a necessity, certainly for a mother with older children?
The Opposition are opening a pandora's box. They have not considered the detail of the problem. They are looking at one small aspect of getting women back to work without assessing the effects on other aspects or on non-working women who, nevertheless, have children. All those points must be taken into account. The Opposition have picked on a simple route and have not considered the complexities that will surely follow.

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Ms. Hilary Armstrong: I am grateful for the opportunity to intervene in the debate. Our proposal is simple and straightforward, but Conservative

Members have not grasped what it is about. The clause would make the provision of child care at workplace nurseries tax neutral. It would not be a tax incentive. It would mean that women or parents will still pay for nursery places, but they will not pay tax on top of the cost that they already pay.
Opposition Members agree with much of what the hon. Member for Buckingham (Mr. Walden) said, but we are talking mainly about children of ages that are unsuitable for nursery education. We are talking about children aged up to three and about extended day care for children between the ages of three and four. No hon. Member—least of all the hon. Gentleman—would say that we want those children to be in nursery education during all the hours that many workplace nurseries would care for children. Therefore, we are talking about a specific form of child care.
We recognise that that form of child care is, and only ever could be, a small part of the overall pattern of child care and nursery education for which we are looking. Indeed, Ministers have said that many women would not choose a workplace nursery because it would not be suitable for their needs, but I emphasise that it would be eminently suitable for other women and that they want the opportunity of choosing it.
However, the Government's measures are making that provision more and more difficult to achieve. Employers who are trying to establish workplace nurseries are finding that the obstacles are so great that many are giving up before they start. Even the organisation that my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) mentioned, the Midland bank, is finding incredible difficulty in putting into practice the commitments that it made earlier this year.
The Government's policy on child care and nursery provision is an incredible mess. On one day I heard the Minister of State, Home Office, the hon. Member for Oxford, West and Abingdon (Mr. Patten), say that when considering the Government's child care policy in his position as chairman of the ministerial group on women's issues, the main thought driving him was that the Government should not be seen to be pushing women back into the workplace. However, on the very next day I attended a conference that was addressed by the Secretary of State for Employment. He talked about women seeing the next decade as the window of opportunity upon which they must seize. Therefore, on the one hand the Government are saying to women, "We welcome and value your skills and training in the workplace," and on the other hand they are saying, "We are not going to assist you in any way in making proper provision for your children."
It is no wonder that this country loses far more women from the workplace during their childbearing years than do any of our European competitors. When those women re-enter the work force, they do so with lower status and a lower pay level than they enjoyed when they left. Therefore, their skills, knowledge and experience are being wasted. Women who do not want to take that road and who, perhaps, want to work part-time or to work the flexible hours to which the hon. Member for Maidstone (Miss Widdecombe) referred have to decide—because there is such woefully inadequate childcare provision—that, because they have children, they have no option but to stay at home and look after them.

Mr. Keith Mans: The hon. Lady maintains that there are a number of restrictions facing women going back to work, but does she agree that we have one of the highest percentages of women in work of any European country?

Ms. Armstrong: I do not want to argue with the hon. Gentleman across the Chamber, but his assertion is not true for the critical period that I am talking about. The majority of those women now in the work force are working part-time and for the majority that is not through choice. I invite the hon. Gentleman to talk to the editor of the Sunday Mirror about the campaign that that newspaper has been running. Since it raised this issue in its columns, it has received thousands upon thousands of letters and petitions from women on this single issue about removing the workplace nursery tax. Women recognise the barriers that I am talking about as barriers.
I also invite the hon. Gentleman to read a recent report published by the Equal Opportunities Commission, which showed the number of women that we are losing from the workplace. We are losing their skills and training because they never re-enter the work force at a level at which they can use the skills and training that they had had as younger women. The EOC has said that the main reason for that is the poverty of our child care provision.
One of our problems in this country is that we still try to make women feel guilty if they want to work and to rear children. That is nonsense because in those countries that have a long-established tradition of strong family life, such as Italy and France, full-time child care is available for young children because it is recognised as a way of enhancing family life rather than detracting from it. It is time that we moved towards that sort of culture and those ideas.

Mr. Peter L. Pike: The arguments that my hon. Friend has outlined are one of the reasons why many women feel compelled to compete for jobs working in schools, such as on school meals. As that is the only thing that they can do, there is great competition for those jobs which meet and match school hours. I know that my wife faced that situation when our children were at school.

Ms. Armstrong: My hon. Friend apparently knows of the experience of interviewing women for a job at about £1·50 an hour for about 12 hours a week and receiving a huge number of applications for the job.
My hon. Friend also mentioned schools. Another aspect of Government policy has meant a great shortage of primary school teachers. Our recent research shows that a reason why we are losing primary school teachers and cannot keep them in the profession is that they are not eligible for priority places in nurseries, so they cannot work. The children of this country are beginning to suffer because of that.
It is important to offer a variety of opportunities to parents and children. Workplace nurseries are only a part of that, and it is extraordinary that the Government should see them as a perk. This morning I visited a private nursery which is determined not to sacrifice quality to make money. Because of that, it has to charge £109 a week to cover costs. The nursery is prepared to offer its services in the work place. If the company subsidises it at, say, £20 a week, parents would still have to find £89. Under the Government's policy they would have to pay tax on top of that.
It is difficult to speak on this issue only in the terms of the Finance Bill because the Government are enacting so many measures that affect child care. Under the Children Bill, it is intended to charge for the registration of day nurseries and child minders. So the Government are placing another charge on childcare and workplace nurseries.
The Government cannot be serious about quality, because these costs put quality out of the reach of the vast majority of working women. We are asking for a minimum contribution, but if the Government accepted the new clause they would show that they had begun to grasp what the problem is about. It is not a simple issue, to be solved by throwing a few pounds at it. It is complex and it affects the future opportunities of millions of children.
I ask the Government to rethink. On the evidence of this debate there is clearly much misunderstanding about this subject. We have never argued that workplace nurseries are the answer to everything, but they do contribute to offering some parents the chance to place their children in a workplace nursery if they believe that that is best for their families.
The Government have erected many obstacles. We ask them to remove one of the small ones, which would cost them very little but would mean symbolically that they were beginning to realise the enormity of the task of beginning to compete with our European neighbours. Accepting the new clause would mean that the Government had begun to consider the future opportunities of our children and women. That is not much to ask, and I urge the Government to accept the new clause.

Mr. Harry Greenway: As an educationist, I strongly support the case made by my hon. Friend the Member for Buckingham (Mr. Walden) for nursery education for all children whose parents seek to avail themselves of it. However, we are in some danger in this debate of pressing for two-tier nursery provision. While I believe that, if nothing else is available, a workplace nursery would be of great value to a child, the fact is, as my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) said, in some areas outstanding community provision is made for children aged from three to five years and from nought to three years. We could have the situation in which, on the one hand, children are in beautifully run, expensive community nurseries, surrounded by green fields, and, on the other, children are in workplace nurseries, perhaps in factories, begrimed, with vile surroundings—[Interruption.] The hon. Member for Durham, North-West (Ms. Armstrong) is shaking her head, but with me she visited an establishment in the United States where the children did not see daylight. I do not believe that it is fair, as a principle, to provide facilities for children in which there is such inequality. We should be saying that we want good provision for all children.
I have been listed as being in favour of workplace nurseries. If nothing else is available, there is a lot to be said for such provision, but it is second best. No inspections are made and no standards are laid down for the children—

Mrs. Maria Fyfe: rose—

Mr. Greenway: I shall not give way. The hon. Lady will have her opportunity.
No standards are laid down for the staff working in workplace nurseries, or for the facilities for the children. That is where the workplace nursery movement falls down. It does not hold a satisfactory standard to which we can point. The best nurseries are excellent, but the worst are not and cannot be satisfactory.
I mentioned the visit of the hon. Member for Durham, North-West, who keeps interrupting from a sedentary position, and myself to the United States. We saw children in a nursery in Washington. which was very nicely appointed, but we were uncertain about the education being offered to those children. It was not of the kind that I would have sought. Children from two weeks upwards were in that institution, but the staff said that they ensured that all the children got out into green fields for at least three hours a day. That just could not happen in many workplace nurseries, which is one of my reservations about them. We must also face the fact that they are not inspected and that they have no agreed and established standards. People who advocate workplace nurseries do themselves and their cause no favours by ignoring that argument.

Ms. Armstrong: Will the hon. Gentleman give way?

Mr. Greenway: The hon. Lady has made her speech; perhaps she will allow me to make mine.
What I am saying is not to condemn workplace nurseries or the important argument that has been put by hon. Members on both sides of the House for supporting working women, especially those with young children. We must remember that in the United States 62 per cent. of women with a child of one year old or younger go to work, while in this country it is only 27 per cent. The figures are rising in each country. When my hon. Friend the Member for Buckingham said that the nation's attention should be drawn to the need to provide children with something better than a workplace nursery, he was speaking sound good sense.
The hon. Member for Islington, South and Finsbury (Mr. Smith) did not advance a single educational argument in favour of workplace nurseries.

Ms. Armstrong: rose—

Mr. Greenway: I should also like to have heard some educational arguments from the hon. Lady, who persists in trying to intervene. She said nothing about what workplace nurseries are intended to do for children aged up to three and even between three and five.
The case for workplace nurseries can be made. In particular, the child must develop self-esteem above all things, but it will not do so if it is cast aside, uncared for, and not given proper nursery provision. So much flows from self-esteem. The whole philosophy of the headstart programme in the United States is based on giving children self-esteem, which is quite right. More needs to be made of the value of nursery education and of the precise roles that workplace nurseries have to play. Is it right to expand the provision of workplace nurseries, or would it be better to expand the provision of nurseries of a broader and more general nature?

Ms. Abbott: As many of the arguments for workplace nurseries have already been made, I shall make only three brief points. Many of the proposals made in debate are

impractical, and that is because so few right hon. and hon. Members bear the responsibility for having their children looked after while they go to work. As my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) said, how can the Government claim that they are responding to demographic changes by trying to get more women into the work force when they are unwilling to look favourably upon the ideas contained in new clause 9?
Conservative Members speak about workplace nurseries and tax relief as though they are simply cash benefits. Clearly no Conservative Member who has spoken has experience of getting children out of bed, getting their breakfast, taking them to a child minder, and then going to work. If they had, they would know that for many millions of women throughout the country workplace nurseries are, first and foremost, a practical provision. Without it, many women—
Dame Elaine Kellett-Bowman: Will the hon. Lady—

Ms. Abbott: No, I shall not give way.

Dame Elaine Kellett-Bowman: rose—

Mr. Speaker: Order.

Ms. Abbott: Without a form of child care—be it a workplace nursery, child minder or nanny—many women are unable to work. We are keen to see new clause 9 implemented because it will enable women to do a day's work without worrying.
Conservative Members complain and vilify mothers of single parent families who claim benefit. I know thousands of such women in Hackney who want to go out to work and not be dependent upon either state benefits or an errant male. If proper child care facilities, such as workplace nurseries, are provided, those women could be self-reliant—as they wish to be. We seek to encourage that spirit of self-reliance in new clause 9. Every week I meet constituents who are stopped from working because they have no access to child care facilities, so work place nurseries have a role to play.
Conservative Members also remarked that Britain has the highest, or one of the highest, proportions of women in the work force in Europe. They do not realise the kind of child care that some women have to put up with.
I was brought up in a community where many women had to work, not because they wanted to do so, not for entertainment or for a diversion, but because they had to pay the rent. Many had to abandon their children to child minders against their better judgment. If Conservative Members had seen, as I did while growing up, the child care that some women were forced to use because of their economic circumstances, they would not be blocking a sensible provision that will provide high-quality workplace nurseries. For some women, the alternative is not to stay at home. Sadly, with heaviness of heart and great misgivings, they entrust their children to child minders who do not have the necessary training or facilities. If Conservative Members had more idea of what life was like for working women, they would not argue against the new clause.
For three reasons—the importance of encouraging women to go into the workplace, the importance of generating high-quality workplace nurseries and the fact that this is much more than a cash benefit—I ask Conservative Members to support the new clause. It is about the practicalities for working women. No Labour


Member thinks that workplace nurseries are the only solution, but it is wrong for Conservative Members who do not have our experiences of helping and supporting ordinary working women, struggling with the problems of bringing up children and giving their children decent care while they go out to work—

Mr. Christopher Hawkins: Will the hon. Lady give way?

Ms. Abbott: I wish to finish my speech.
For Conservative Members with no experience of the problems of working class women, who are trying to give their children decent care and go out to work, to block a measure that is at least part of the answer suggests great ignorance, callousness and lack of thought about demographic trends. I urge hon. Members to think about the struggles of working women, many of them single women who wish to be independent and who despair at the options offered to them, and to support the new clause.

Mr. Win Griffiths: Some of the contributions to the debate would have been better made in an education debate. I agree with the hon. Member for Buckingham (Mr. Walden) that our objective should be good quality nursery education available to all parents who want it for their children, but this debate on the Finance Bill is not the time when that should be developed.
The new clause is important in terms of the way in which local authorities provide nursery education. The sad fact is that the hon. Member for Buckingham would be better off tramping around the Tory shires and preaching this message to them. The worst providers of nursery education are Conservative-controlled authorities. Money provided by the Government in rate support grant for nursery needs is not even spent by those authorities. Some of them do not provide one state-funded place in a nursery school. The nursery place is a second best provision for those who cannot go to nursery schools, but if workplace nurseries spread there is no reason why there cannot be state regulation—however much Conservative Members may not like those words—to ensure that the quality and environment of workplace nurseries are good.

Dame Elaine Kellett-Bowman: The hon. Member for Hackney, North and Stoke Newington (Ms. Abbott) kept referring to high-quality provision at the workplace. The trouble is that there is no machinery to ensure that there is other than what she referred to as child-minding. The hon. Gentleman's point is good—the workplace nurseries must be of high quality—but how does one ensure that there is uniformity throughout the land?

Mr. Griffiths: A debate on the Finance Bill is not the time to discuss ways to regulate workplace nurseries. We must ensure that they are of a high quality, and there are plenty of ways to achieve that. What amounts to a tax on working mothers who happen to have a child in a workplace nursery is a disincentive for companies to spread and develop nursery provision.
The scale of the problem can best be shown by comparing Britain's provisions with those of Denmark. In Britain, only about 8 per cent. of women with families are in full-time employment, yet we provide only 1 per cent. to 2 per cent. of nursery places for children under the age of

one. In Denmark, 40 per cent. of women with families are in full-time employment and it provides more than 40 per cent. of nursery places for the youngest children.
The hon. Member for Maidstone (Miss Widdecombe) suggested that such a provision would introduce an anomaly into the tax system. Many such anomalies already exist. In general, the 20 best providers of nursery education are Labour-controlled authorities which, in many cases, spend even more than the Government allow to ensure good nursery education. Let us take the example of a working mother who sends her four-year-old to a state-funded nursery. There is no tax impediment and the child receives a full-time education. Let us now take the example of a similar woman in a Conservative-controlled authority which provides no nursery places. If the child is placed in a workplace nursery—if there happens to be a place available—the woman is taxed on the estimated financial benefit of that nursery place. I hope, incidentally, that my remarks will not encourage the Minister to tax the assumed value of state-funded nursery education. The new clause would remove that anomaly.

Miss Widdecombe: I am grateful to the hon. Gentleman for giving way, especially as it is not the first time. What would be the position of the working mother in a Labour-controlled authority who cannot put her child into full-time nursery education because the child is under the age of two and does not have the benefit of a subsidised workplace nursery, who thus has to pay for child care?

Mr. Griffiths: The whole point of the new clause is to ensure that that mother could send her child to a subsidised workplace nursery.

Miss Widdecombe: But what if it does not exist?

Mr. Griffiths: If the new clause were passed, more companies would be prepared to provide workplace nurseries and more mothers would be happy to put their children in them.
The new clause would help a relatively small group of women to return to work, in the knowledge that their children were being well cared for because the nurseries would be well regulated and educational. For only a negligible sum of money, the Government are being mean and parsimonious towards working mothers. They are not helping them to return to work.

Mrs. Fyfe: We all knew that the Government would not accept the new clause, but I was curious to discover their reasons for not doing so. We have heard a great deal about educational standards—Conservative Members appear to have forgotten that we are debating a tax Bill, not a children's Bill. If it were appropriate tonight, we would be more than glad to discuss educational standards. The Labour party put forward proposals in its recently published policy review document—I should be glad to lend it to Conservative Members—for a variety of childcare schemes designed to meet the needs of both children and their parents. Workplace nurseries are only one aspect of the variety of child care that we would wish to offer.
The objection on educational grounds comes from a Government who have presided over the worst level of nursery provision in all the EEC countries, and from a Government whose Prime Minister recently told a women's magazine that mothers with childcare difficulties should get together to cobble up some informal


arrangement among themselves. She was apparently unaware that in doing so she was advising them to break the law. In addition, this is a Government who refuse to make care of under-fives a statutory responsibility for local authorities. The result is that the best provisions for the under-fives happen to be in Labour-controlled local authorities, and they are doing that with great difficulty on their constrained budget. Because they do not have a statutory responsibility to educate the under-fives, they are doing so under enormous difficulties.
9.30 pm
If the Government took on board all the points that we have been making, we would be delighted to have their support. But we all know perfectly well that if we were proposing all that tonight, they would vote against it in the Lobby, so let us not have such hypocrisy on the subject.
The hon. Member for Buckingham (Mr. Walden) referred to maintenance of quality. We want high-quality provision in all sectors of care for the under-fives. But would the hon. Gentleman say that if he could not have dinner at the Ritz he would not dine at all? Of course he would not. Working women might want a convenient nursery in their locality. Mothers would not want to take their children through the wind, rain and snow to a workplace nursery and back again if a more convenient local nursery provided high-quality care. When such provision is denied to them and they know that it will continue to be denied to them as long as the Government are in office, they are interested in workplace nurseries. Provided that they are properly run, there is nothing wrong in that.
The Opposition argue for high standards in nurseries whether they are in the workplace or elsewhere. We would not dream of advocating that a workplace nursery was a place where children were dumped during a working day and that no standards were maintained within it. A Conservative Member asked from a sedentary position how such standards would be maintained. The answer is simple—by an inspectorate, just as schools and factories are inspected. That would be the obvious way.
While the Government are attempting to make the excellent the enemy of the good, offering absurd arguments, they are forgetting one good argument. Our proposal would benefit mainly women, but it would not benefit only women. When I was a Glasgow district councillor, we wanted to set up a workplace nursery for the entire work force, but we were frustrated in doing so because the tax put the cost beyond the pocket of many council employees. However, I recall a male worker in the building department who had five children, two of them under school age, whose wife had left him, who was delighted with the proposal and would have used the nursery. In case Conservative Members fear that backwoodsmen and women in their constituencies would consider this to be some kind of feminist point which they would deplore, let them remember that men, too, could benefit from this. That might make Conservative Members view it more favourably.
I find it hard to understand those who are prepared to dream up every possible argument in favour of the preservation of the life of a child before birth but who do not care tuppence what happens once a child is born. I hope that the hon. Member for Maidstone (Miss Widdecombe) does not think that that is a brutal argument, but I must make that point. Mothers who do

not get a workplace nursery place or a local education authority place are often forced to accept an unsatisfactory arrangement, having their children looked after by someone who is untrained and unregistered, who may not do a good job in caring for their children. If people genuinely care about the needs of children they should support the new clause.

Miss Widdecombe: The hon. Lady said that some of us who care for children before birth do not care tuppence about them once they are born. That is categorically untrue. I have taken part in many debates in which I specifically talked about the rights of born children. The hon. Lady does not make a fair point. There are many ways of caring for children. I have not made any speech tonight against child care or nursery provision. I have talked about the anomalies created by various childcare arrangements. Childcare can also be a mother looking after her child at home and I have never done or said anything that militates against that. Will the hon. Lady withdraw that personal insult?

Mrs. Fyfe: I am sorry, but I have not heard anything to make me withdraw those remarks. If the hon. Member for Maidstone is sincere about caring for all children after birth, she would not only support the new clause but make a point of supporting our proposals to make nursery education and playgroup provision the statutory responsibility of local authorities. She would ensure that the Government provided funds to make that possible. If she fails to do that, she will not put her stated objectives into practice.
The hon. Member for Ealing, North (Mr. Greenway) spoke from experience about standards in the United States where children at nurseries get out into the fresh air. That was an extraordinary remark. No hon. Member has argued against children getting fresh air. When we talk about standards we are not thinking of cooping up children in fume-infested factories. We are thinking of sensible provision which includes fresh air and an inspectorate to maintain high standards.
We do not wish to make workplace nurseries compulsory. Our point is that if the tax were lifted, parents and their employers could judge whether a workplace nursery could be provided and what standards could be offered. They could find a nearby site if it was not convenient to have a nursery at the workplace.
Another specious argument was about the equality of provision. It was asked what would happen if the local authority provided a better standard than the workplace nursery. If people want to compete to provide the best standards, no Labour Member will argue against that. We want the best possible provision. I am sure that the different sectors could learn good practices from each other and the best way to provide for our children.
As has been said, a large part of education is encouraging self-confidence and self-esteem in children and making them aware of their worth as human beings. When the education system achieves that objective we shall never again have a Tory Government because people will have learnt to value themselves more highly and they will drop their deferential attitude which sustains that bunch in Government.

Mr. Pike: I shall be very brief, as the reasons why the new clause should be passed have already been capably put by my hon. Friends.
I find it deeply regrettable that we should debate the matter yet again this year, and that this year not one Conservative Member has spoken in support of the move that we are debating. The hon. Member for Maidstone (Miss Widdecombe) tried to lead us along many false trails and brought many red herrings into the picture, but we are actually discussing a very simple proposal. I was, however, even more concerned by the implication of the hon. Members for Buckingham (Mr. Walden) and for Ealing, North (Mr. Greenway) that Opposition Members were arguing for second best, and should be arguing for nursery education. Both hon. Members know that this is a debate on the Finance Bill, not an education debate. They also know that the Labour party wants a considerable improvement in the provision of nursery education. We shall make that very clear in an appropriate debate. We were not party to the points of view expressed by the hon. Member for Buckingham when he was a Minister at the Department of Education and Science, but I hope that he advocated what he has been advocating today.
Opposition Members have pointed out that most of the best nursery provision is found in Labour authorities. I must add that I do not know of one—including Lancashire, my own county council—which is satisfied with the service that it is able to provide. They would all like to do much more if the finance were available.
The new clause might not achieve what we would consider the best possible provision for children—and for parents who wish to work—but it would help by removing tax from workplace nurseries. As my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) has pointed out, the amount of money that the tax yields to the Government is in any case so small as not to be worth bothering about.
As well as enabling parents to pursue a career and to provide income for the family, the new clause would benefit the industries and commercial institutions which provide nursery facilities. They do not do so only for the benefit of their employees; it is to their advantage if those employees return to work. Only 100 or so workplaces provide such facilities at present because many are deterred by the fact that tax will be payable. Employers must consider what package of conditions to offer employees as an incentive and, they hope, to benefit themselves as well. The provision of workplace nurseries will benefit the parent, the family and the institution involved.
If the new clause is carried, I am certain that there will be an increase in the provision of workplace nurseries. Although we realise that the Government's days may well be numbered, we want to help people to go back to work. There will be a growing need for parents of both sexes to do so. I hope that we shall approve the new clause, stop penalising parents and enable more employers to make such facilities available. That will be of advantage to all parties concerned, and to the nation.

Mr. Norman Lamont: There have been a number of strong and notable speeches. The Government appreciate the importance of workplace nurseries and of encouraging married women to return to work. My hon. Friends the Members for Maidstone (Miss Widdecombe) and for

Wyre (Mr. Mans) pointed out that this country has been conspicuously successful in encouraging married women to return to work.

Mr. Tony Marlow: Why on earth should we encourage married women to return to work? That is pure Socialism. Why should we not encourage them to stay at home and look after their children? We have great problems with hooligans and vandalism because of ill-disciplined children. Why should we not give a financial incentive to mothers to stay at home and look after their children rather than encouraging the Socialist bunkum and junk put forward by the other side?

Mr. Lamont: My hon. Friend is being a little hasty if he thinks that I am about to accept the new clause. In fact, I am about to reject it. I was not suggesting that there should be a financial incentive. The burden of my argument will be that if married women want to work and if employers want to employ them, the market will work and employers will pay the necessary wage to encourage married women to return to work.
The new clauses epitomise one of the dilemmas. A narrower and more focused new clause was moved by the hon. Member for Islington, South and Finsbury (Mr. Smith). His new clause would confine tax relief to workplace nurseries. The new clause tabled by the hon. Member for Berwick-upon-Tweed (Mr. Beith) provides for tax relief not just for workplace nurseries but for those who seek to make their own provision for the care of their children at home. I have to reject his new clause on the grounds of cost and of its very large deadweight element.
The effect of the new clause would be to give a large tax subsidy to people who already employ nannies, thereby making provision for the care of their children at home. However, the hon. Member for Berwick-upon-Tweed has a point. If tax relief is confined narrowly to workplace nurseries, it would result in many inequalities which would not be fair. It would lead to unfairness as between one taxpayer and another.
The hon. Gentleman has not met all the problems that his new clause would create. It would lead to tax relief being given to families where both parents go out to work and pay someone else to look after their children. No tax relief, however, would be given to families where one or other of the parents chooses not to go out to work but to stay at home and look after the children. If the husband goes out to work, however, the wife may prefer not to spend her time looking after the children. She may prefer to play golf and to employ somebody else to look after the children. Under new clause II, that family could receive a child care allowance. Is that what the hon. Member for Berwick-upon-Tweed really has in mind? It might be possible for the taxpayer to pay a relative—perhaps a grandparent—to look after the children and to claim tax relief. What about neighbours looking after each other's children, paying each other for doing so and getting tax relief at the same time?
The new clause is at least to be commended for attempting to face the basic issue of equity as between one taxpayer and another, but the more one looks at the new clause the more one realises that it would lead to further difficulties and problems. Its deadweight cost would amount to about £100 million, before one began to consider whether it would have any effect on behaviour, or


whether it would encourage people to return to work or make provision for their children in the way that the hon. Gentleman suggests.

Mr. Hawkins: Is there not a fundamental drawback to workplace nurseries? I find it odd that the Labour party is supporting the idea so strongly because when the mother changes her job the child has to leave the nursery. Surely we should encourage nursery provision regardless of people's jobs or workplace.

Mr. Lamont: That may well be so.
The hon. Member for Islington, South and Finsbury referred to the tax relief in the tax system. It is important to realise that the tax system, in certain ways which correspond to the basic tax rules, allows employers certain deductions for the provision of workplace nurseries. Employers can set against profits for corporation tax purposes a wide range of expenditure on their day-to-day running costs, because those costs are regarded as normal business costs for providing facilities and suitable working conditions for employees. They can also get tax allowances for capital expenditure on equipping a workplace nursery. Some employers, such as those in the industrial sector, may also get capital allowances for expenditure on constructing or acquiring a building for a workplace nursery.
Employers can thus claim a number of reliefs in making workplace nurseries available.
Because the benefits in kind regulations apply only above an £8,500 threshold, many married women earning less than £8,500 per year are not taxed on the benefit of the workplace nursery. The specific regulations correspond with general reliefs in the tax system and are compatible with our existing system, but they give some encouragement to workplace nurseries. However, our tax system does not—and did not even under a Labour Government —give tax relief to enable people to carry out a particular job. There is no such thing as tax relief to enable someone to do a job. Expenses in the performance of a job may be tax deductible, but expenses to put someone in a position to carry out a job are not tax deductible. Hon. Members on both sides of the House will know that over the years there has been enormous pressure to make travel-to-work expenses tax deductible. The hon. Member for Bridgend (Mr. Griffiths) gave that away when he talked about people going to work in buses provided by employers. That is taxable, and so it should be because it is a very considerable benefit in kind. Governments of both parties have always taken the view that we should not provide tax relief for expenses that enable people to carry out their jobs.
The hon. Member for Islington, South and Finsbury is under a number of misapprehensions. First, there is no special "nursery tax". The benefit of an employer-subsidised nursery place is subject to income tax in exactly the same way as other benefits in kind provided by an employer. Secondly, it is not a new tax. Such benefits have been within the charging rules since they were first introduced by the Labour party more than 40 years ago. Thirdly, the charge is not in any sense disproportionate because a place at a subsidised workplace nursery can be a very considerable benefit. It can certainly run into hundreds of pounds, and over a year it may be worth more that £1.000 to an employee.
In principle, an employee's tax bill should not be based on the extent to which he is paid in cash or in kind. All employees should be taxed on the same basis. If an employee pays tax on the benefit of child care provided by an employer, that treatment is entirely consistent and fair to the vast majority of employees who have to pay for child care out of taxed income. I do not believe that new clause 9 would be universally welcomed. It would not be welcomed by the many working parents who arrange their own child care and pay for it out of taxed income.
Secondly, the new clause provides only for employees. There would be nothing for the self-employed. There is nothing for employees whose employers provide other forms of assistance with child care, such as making contributions to places in community nurseries or for child-minding. It would provide nothing for families who prefer to leave their children with a relative or child-minder and nothing for families who arrange their affairs so that children can be cared for at home.
The inequities in the Labour party's approach are self-evident. Labour Members are also arguing that we should give tax relief to enable people to be in a position to carry out their job. The tax system has never done that before. We have not done that with expenses for travel to work in the past. There is no reason to believe that the present tax treatment of child care expenses is a barrier to the employment of women with children.
There has been a large increase in the number of women who work and the evidence is that the number of workplace nurseries is growing all the time. Employers are providing such nurseries because they want to recruit labour. We hear about the demographic changes. If employers want to employ married women, they will pay the rate the market demands and ensure that married women are in a position to return to work and are provided with the facilities to enable them to do so. New clause 9 is riddled with anomalies and would be a major inconsistency in the tax system.

Mr. Chris Smith: Our debate on the important new clause has been marked by strong speeches from many of my hon. Friends. It has also been marked by two quite remarkable contributions from the hon. Members for Buckingham (Mr. Walden) and for Ealing, North (Mr. Greenway). Both of them argued for universal nursery education and said that we should propose good nursery education provision for all children. Of course the Labour party agrees with that. We have been arguing that for many a long year and—

Mr. Walden: Will the hon. Gentleman give way?

Mr. Smith: No, because time is short.

Hon. Members: Give way.

Mr. Speaker: Order.

Mr. Smith: Conservative Members support a Government who have done everything in their power to make it difficult for local authorities to provide good nursery education and nursery provision for the under-fives. I am pleased and proud to say that all the 24 top local authorities in terms of the provision of nursery education are Labour controlled. They are the authorities which provide good quality nursery education.
We should be looking, of course, for universal provision. It would be a range of provision provided by


local authorities, voluntary agencies and employers as well. Simply to say that Labour is interested only in workplace nurseries provided by employers is wholly to misinterpret and misunderstand what we are arguing. We are arguing clearly for the removal of the tax on workplace nurseries as part of the overall solution to the problem of inadequate childcare. It is not the whole answer, but it is part of the answer and it would be a step along the road to improvement.
The Financial Secretary put two arguments. First, he said that there was no such thing as a relief for expenses to put oneself into a position to do a job. If that is so, I must ask him why on earth clauses 50, 51 and 52 are included in the Bill. They provide precisely such a relief for expenses to put oneself into a position to do a job. We are asking only for the same treatment for mothers who have to take up a workplace nursery place to enable them to do a job.
Secondly, the Financial Secretary said that workplace nursery provision was treated in exactly the same way as other benefits. When it is treated in the same way as subsidised canteens, sports grounds and business lunches, we shall agree with him, but such benefits are not subject to the tax to which workplace nursery provision is subject.
We are arguing for the simple removal of a tax which acts as a disincentive to women playing their full part in our economy. Not only does it discourage women from playing a part by going to work; it deprives children by preventing them from gaining the full experience from which they might otherwise benefit.
The real face of the Conservative party was revealed by the hon. Member for Macclesfield (Mr. Winterton), who said that there should be a financial incentive for mothers to stay at home. We strongly disagree. We want to ensure that more women can join the work force and play a full part in our national life if they want to, and the new clause represents a small step towards achieving that goal.

Question put, That the clause be read a Second time:—

The House divided: Ayes 200, Noes 273.

Division No. 293]
[10 pm


AYES


Abbott, Ms Diane
Caborn, Richard


Adams, Allen (Paisley N)
Callaghan, Jim


Alton, David
Campbell, Menzies (Fife NE)


Anderson, Donald
Campbell, Ron (Blyth Valley)


Archer, Rt Hon Peter
Campbell-Savours, D. N.


Armstrong, Hilary
Canavan, Dennis


Ashton, Joe
Carlile, Alex (Mont'g)


Banks, Tony (Newham NW)
Clark, Dr David (S Shields)


Barnes, Harry (Derbyshire NE)
Clarke, Tom (Monklands W)


Barnes, Mrs Rosie (Greenwich)
Clay, Bob


Barron, Kevin
Clelland, David


Battle, John
Clwyd, Mrs Ann


Beckett, Margaret
Cohen, Harry


Beith, A. J.
Coleman, Donald


Benn, Rt Hon Tony
Cook, Robin (Livingston)


Bennett, A. F. (D'nt'n &amp; R'dish)
Cousins, Jim


Bermingham, Gerald
Cox, Tom


Bidwell, Sydney
Cryer, Bob


Blair, Tony
Cummings, John


Blunkett, David
Cunliffe, Lawrence


Boateng, Paul
Cunningham, Dr John


Boyes, Roland
Dalyell, Tam


Bray, Dr Jeremy
Darling, Alistair


Brown, Gordon (D'mline E)
Davies, Rt Hon Denzil (Llanelli)


Brown, Nicholas (Newcastle E)
Davies, Ron (Caerphilly)


Buckley, George J.
Davis, Terry (B'ham Hodge H'l)





Dewar, Donald
Martlew, Eric


Dixon, Don
Maxton, John


Dobson, Frank
Meacher, Michael


Doran, Frank
Meale, Alan


Dunnachie, Jimmy
Michael, Alun


Dunwoody, Hon Mrs Gwyneth
Michie, Bill (Sheffield Heeley)


Eadie, Alexander
Michie, Mrs Ray (Arg'l &amp; Bute)


Eastham, Ken
Mitchell, Austin (G't Grimsby)


Ewing, Harry (Falkirk E)
Moonie, Dr Lewis


Ewing, Mrs Margaret (Moray)
Morgan, Rhodri


Fatchett, Derek
Morley, Elliott


Fearn, Ronald
Morris, Rt Hon A. (W''shawe)


Field, Frank (Birkenhead)
Morris, Rt Hon J. (Aberavon)


Flannery, Martin
Mowlam, Marjorie


Flynn, Paul
Mullin, Chris


Foot, Rt Hon Michael
Murphy, Paul


Foster, Derek
Oakes, Rt Hon Gordon


Foulkes, George
O'Brien, William


Fraser, John
O'Neill, Martin


Fyfe, Maria
Orme, Rt Hon Stanley


Galbraith, Sam
Parry, Robert


Garrett, John (Norwich South)
Patchett, Terry


Gilbert, Rt Hon Dr John
Pendry, Tom


Godman, Dr Norman A.
Pike, Peter L.


Golding, Mrs Llin
Powell, Ray (Ogmore)


Gould, Bryan
Prescott, John


Graham, Thomas
Primarolo, Dawn


Griffiths, Nigel (Edinburgh S)
Quin, Ms Joyce


Griffiths, Win (Bridgend)
Radice, Giles


Grocott, Bruce
Randall, Stuart


Hardy, Peter
Redmond, Martin


Haynes, Frank
Rees, Rt Hon Merlyn


Henderson, Doug
Reid, Dr John


Hinchliffe, David
Richardson, Jo


Hoey, Ms Kate (Vauxhall)
Roberts, Allan (Bootle)


Home Robertson, John
Robertson, George


Hood, Jimmy
Robinson, Geoffrey


Howarth, George (Knowsley N)
Rogers, Allan


Howell, Rt Hon D. (S'heath)
Rooker, Jeff


Howells, Geraint
Ross, Ernie (Dundee W)


Hoyle, Doug
Rowlands, Ted


Hughes, John (Coventry NE)
Ruddock, Joan


Hughes, Robert (Aberdeen N)
Sheldon, Rt Hon Robert


Hughes, Roy (Newport E)
Shore, Rt Hon Peter


Illsley, Eric
Short, Clare


Ingram, Adam
Skinner, Dennis


Janner, Greville
Smith, Andrew (Oxford E)


Jones, Barry (Alyn &amp; Deeside)
Smith, C. (Isl'ton &amp; F'bury)


Jones, leuan (Ynys Môn)
Smith, Rt Hon J. (Monk'ds E)


Jones, Martyn (Clwyd S W)
Spearing, Nigel


Kaufman, Rt Hon Gerald
Steinberg, Gerry


Kennedy, Charles
Stott, Roger


Kinnock, Rt Hon Neil
Strang, Gavin


Kirkwood, Archy
Straw, Jack


Lambie, David
Taylor, Mrs Ann (Dewsbury)


Lamond, James
Thompson, Jack (Wansbeck)


Leadbitter, Ted
Turner, Dennis


Lestor, Joan (Eccles)
Vaz, Keith


Lewis, Terry
Wall, Pat


Litherland, Robert
Walley, Joan


Livsey, Richard
Wareing, Robert N.


Lloyd, Tony (Stretford)
Watson, Mike (Glasgow, C)


Lofthouse, Geoffrey
Welsh, Michael (Doncaster N)


McAllion, John
Wig ley, Dafydd


McAvoy, Thomas
Williams, Alan W. (Carm'then)


McCartney, Ian
Wilson, Brian


Macdonald, Calum A.
Winnick, David


McFall, John
Wise, Mrs Audrey


McKelvey, William
Worthington, Tony


McLeish, Henry
Wray, Jimmy


McNamara, Kevin
Young, David (Bolton SE)


Madden, Max



Mahon, Mrs Alice
Tellers for the Ayes:


Marshall, David (Shettleston)
Mr. Frank Cook and


Marshall, Jim (Leicester S)
Mr. Allen McKay.


Martin, Michael J. (Springburn)



NOES


Adley, Robert
Alexander, Richard


Aitken, Jonathan
Alison, Rt Hon Michael






Allason, Rupert
Forth, Eric


Amess, David
Fowler, Rt Hon Norman


Amos, Alan
Fox, Sir Marcus


Arbuthnot, James
Franks, Cecil


Arnold, Jacques (Gravesham)
Freeman, Roger


Ashby, David
French, Douglas


Atkins, Robert
Fry, Peter


Atkinson, David
Gale, Roger


Baker, Nicholas (Dorset N)
Gardiner, George


Baldry, Tony
Garel-Jones, Tristan


Banks, Robert (Harrogate)
Gill, Christopher


Batiste, Spencer
Glyn, Dr Alan


Beaumont-Dark, Anthony
Goodhart, Sir Philip


Bellingham, Henry
Goodlad, Alastair


Bevan, David Gilroy
Goodson-Wickes, Dr Charles


Biffen, Rt Hon John
Gorman, Mrs Teresa


Blaker, Rt Hon Sir Peter
Gow, Ian


Body, Sir Richard
Grant, Sir Anthony (CambsSW)


Boscawen, Hon Robert
Greenway, Harry (Ealing N)


Boswell, Tim
Greenway, John (Ryedale)


Bottom ley, Peter
Gregory, Conal


Bottomley, Mrs Virginia
Griffiths, Sir Eldon (Bury St E')


Bowden, A (Brighton K'pto'n)
Griffiths, Peter (Portsmouth N)


Bowden, Gerald (Dulwich)
Ground, Patrick


Bowis, John
Gummer, Rt Hon John Selwyn


Boyson, Rt Hon Dr Sir Rhodes
Hague, William


Braine, Rt Hon Sir Bernard
Hamilton, Neil (Tatton)


Brandon-Bravo, Martin
Hampson, Dr Keith


Brazier, Julian
Hannam, John


Bright, Graham
Hargreaves, A. (B'ham H'll Gr')


Brown, Michael (Brigg &amp; Cl't's)
Hargreaves, Ken (Hyndburn)


Browne, John (Winchester)
Harris, David


Bruce, Ian (Dorset South)
Haselhurst, Alan


Buck, Sir Antony
Hawkins, Christopher


Budgen, Nicholas
Hayes, Jerry


Burns, Simon
Hayhoe, Rt Hon Sir Barney


Burt, Alistair
Hayward, Robert


Butcher, John
Heathcoat-Amory, David


Butler, Chris
Heddle, John


Butterfill, John
Hicks, Robert (Cornwall SE)


Carlisle, John, (Luton N)
Hill, James


Carrington, Matthew
Hind, Kenneth


Carttiss, Michael
Hogg, Hon Douglas (Gr'th'm)


Cash, William
Hordern, Sir Peter


Chalker, Rt Hon Mrs Lynda
Howarth, G. (Cannock &amp; B'wd)


Chapman, Sydney
Howell, Rt Hon David (G'dford)


Chope, Christopher
Hughes, Robert G. (Harrow W)


Churchill, Mr
Hunt, David (Wirral W)


Clark, Hon Alan (Plym'th S'n)
Hunt, Sir John (Ravensbourne)


Clark, Dr Michael (Rochford)
Irvine, Michael


Clark, Sir W. (Croydon S)
Irving, Charles


Clarke, Rt Hon K. (Rushcliffe)
Jack, Michael


Conway, Derek
Jackson, Robert


Coombs, Anthony (Wyre F'rest)
Janman, Tim


Coombs, Simon (Swindon)
Jessel, Toby


Cope, Rt Hon John
Johnson Smith, Sir Geoffrey


Couchman, James
Jones, Gwilym (Cardiff N)


Cran, James
Jones, Robert B (Herts W)


Currie, Mrs Edwina
Jopling, Rt Hon Michael


Curry, David
Kellett-Bowman, Dame Elaine


Davies, Q. (Stamf'd &amp; Spald'g)
Key, Robert


Davis, David (Boothferry)
Kilfedder, James


Day, Stephen
King, Roger (B'ham N'thfield)


Devlin, Tim
Knapman, Roger


Dicks, Terry
Knight, Greg (Derby North)


Dorrell, Stephen
Knight, Dame Jill (Edgbaston)


Douglas-Hamilton, Lord James
Knowles, Michael


Dover, Den
Knox, David


Dunn, Bob
Lamont, Rt Hon Norman


Durant, Tony
Lang, Ian


Dykes, Hugh
Latham, Michael


Evennett, David
Lawrence, Ivan


Fairbairn, Sir Nicholas
Lawson, Rt Hon Nigel


Fallon, Michael
Lee, John (Pendle)


Favell, Tony
Leigh, Edward (Gainsbor'gh)


Field, Barry (Isle of Wight)
Lennox-Boyd, Hon Mark


Fishburn, John Dudley
Lester, Jim (Broxtowe)


Fookes, Dame Janet
Lightbown, David


Forman, Nigel
Lilley, Peter


Forsyth, Michael (Stirling)
Lloyd, Sir Ian (Havant)





Lloyd, Peter (Fareham)
Raison, Rt Hon Timothy


Lord, Michael
Redwood, John


Luce, Rt Hon Richard
Renton, Tim


McCrindle, Robert
Riddick, Graham


Macfarlane, Sir Neil
Roberts, Wyn (Conwy)


MacKay, Andrew (E Berkshire)
Sackville, Hon Tom


Maclean, David
Shaw, Sir Giles (Pudsey)


McLoughlin, Patrick
Shelton, Sir William


McNair-Wilson, Sir Michael
Shephard, Mrs G. (Norfolk SW)


McNair-Wilson, Sir Patrick
Shepherd, Colin (Hereford)


Major, Rt Hon John
Shersby, Michael


Malins, Humfrey
Smith, Tim (Beaconsfield)


Mans, Keith
Speller, Tony


Maples, John
Stanley, Rt Hon Sir John


Marek, Dr John
Stern, Michael


Marland, Paul
Stevens, Lewis


Marlow, Tony
Stewart, Andy (Sherwood)


Marshall, John (Hendon S)
Sumberg, David


Marshall, Michael (Arundel)
Taylor, Ian (Esher)


Martin, David (Portsmouth S)
Taylor, John M (Solihull)


Mates, Michael
Taylor, Teddy (S'end E)


Maude, Hon Francis
Tebbit, Rt Hon Norman


Maxwell-Hyslop, Robin
Thompson, D. (Calder Valley)


Mayhew, Rt Hon Sir Patrick
Thompson, Patrick (Norwich N)


Miller, Sir Hal
Thorne, Neil


Mills, Iain
Thornton, Malcolm


Miscampbell, Norman
Townend, John (Bridlington)


Mitchell, Andrew (Gedling)
Tracey, Richard


Mitchell, Sir David
Tredinnick, David


Monro, Sir Hector
Trippier, David


Montgomery, Sir Fergus
Trotter, Neville


Moore, Rt Hon John
Twinn, Dr Ian


Morris, M (N'hampton S)
Waddington, Rt Hon David


Morrison, Sir Charles
Walden, George


Morrison, Rt Hon P (Chester)
Walker, Bill (T'side North)


Moss, Malcolm
Waller, Gary


Moynihan, Hon Colin
Ward, John


Mudd, David
Wardle, Charles (Bexhill)


Neale, Gerrard
Warren, Kenneth


Neubert, Michael
Watts, John


Nicholls, Patrick
Wells, Bowen


Nicholson, David (Taunton)
Whitney, Ray


Nicholson, Emma (Devon West)
Widdecombe, Ann


Norris, Steve
Wiggin, Jerry


Onslow, Rt Hon Cranley
Wilshire, David


Oppenheim, Phillip .
Winterton, Mrs Ann


Page, Richard
Winterton, Nicholas


Paice, James
Wolfson, Mark


Patnick, Irvine
Wood, Timothy


Patten, John (Oxford W)
Woodcock, Dr. Mike


Pattie, Rt Hon Sir Geoffrey
Yeo, Tim


Peacock, Mrs Elizabeth
Young, Sir George (Acton)


Porter, Barry (Wirral S)



Porter, David (Waveney)
Tellers for the Noes:


Powell, William (Corby)
Mr. Kenneth Carlisle and


Price, Sir David
Mr. Alan Howarth.


Raffan, Keith

Question accordingly negatived.

Mr. Nicholas Winterton: On a point of order, Mr. Speaker. In the debate that has just finished, the hon. Member for Islington, South and Finsbury (Mr. Smith) made an unwarranted attack on me without giving me notice that he intended to do so. His attack was wholly unjustified. The archaic views that he attributed to me have never been mine and have never been expressed by me. Perhaps he will come to the Dispatch Box and apologise.

Mr. Chris Smith: Further to that point of order, Mr. Speaker. The hon. Gentleman is entirely correct. I mistook him for the hon. Member for Northampton, North (Mr. Marlow), although how I could have done so I fail to understand. My mistake reflected badly on the hon. Member for Macclesfield (Mr. Winterton). As you know,


Mr. Speaker, I have already apologised to you and sent a note to Hansard to ensure that the record of my intentions is correct.

Mr. Speaker: On that happy note, we should move on.

New Clause 18

SPECIAL CAR TAX

'All motor vehicles subject to the 10 per cent special car tax shall when sold with exhaust systems complying with the relevant EC Directive on emission standards be eligible for a rebate of up to 20 per cent of the said special car tax.'.—[Mr. Roger King.]

Brought up, and read the First time.

Mr. Roger King: I beg to move, That the clause be read a Second time.
Environmental matters give rise to much concern these days and have attracted a wide range of attention and many remedies as how best to tackle the challenge that they pose. One of the foremost examples of our determination to tackle some of the problems of the environment is the introduction of lead-free petrol, which is now widely supported and used by most motorists—probably as a result of the financial incentives that the Government have seen fit to introduce, amounting now to about 10p per gallon. About 20 per cent. of the motoring population now use lead-free petrol, and 1 warmly welcome that.
There is a great deal of argument about how effective this simple measure has been in reducing pollution. A few years ago it became a requirement to remove most of the lead from leaded petrol anyway, but we shall all reap the benefits from this small but significant step forward. There is no doubt that encouragement in the form of a reduction in the price of petrol has played a significant part in persuading the motorist to make the change.
The introduction of lead-free petrol is a small step along the road to an environmentally cleaner atmosphere. European legislation is making it mandatory for most cars built after 1992—we brought that date forward by one year—to have catalytic systems fitted to their exhaust systems to remove further exhaust impurities. That has been agreed by all the member states and there is nothing now to stop us fitting those systems to cars as early as we can. Some countries within the European Community have already done so, notably Germany, which has been seeking in the past few years to change to cars equipped with those exhaust emission control devices by offering very strong financial incentives to the purchasers of cars fitted with them.
The increase in the cost of the vehicle when fitted with proper exhaust emission devices is significant. Of course, it will vary depending upon the size of the engine fitted, but it will, for instance, cost about £289 to fit a single stage catalyst on the exhaust system of a Rover Group Mini, whereas on bigger cars it will cost much more, and sums of £800 have been commonly put about as being the extra cost involved.
New clause 18 gives further encouragement to the purchasers to specify that they want cars fitted with the catalytic devices sooner than when required under the

Europan legislation. Most United Kingdom manufacturers can produce cars with those exhaust systems fitted —which, of course, they will have to do in any case within a short period. There is no need for us to delay any further. We need not wait until 1992. We can start to sell those cars now. In fact, many manufacturers are already offering cars fitted with such devices. However, customers have to pay a penalty for cleaning up the atmosphere and playing their part in reducing exhaust emissions.
Surely a Government who have taken such a significant lead in environmental measures and in reducing the price of lead-free petrol would wish to extend that lead into encouraging the fitting of these far more elaborate devices to cars so as to tackle the problems of pollution once and for all. Some of us would take the view that we were merely moving the goalposts a little, because even with catalytic converters all that cars do is to convert various poisonous gases into so-called harmless carbon dioxide. Yet we all know that the carbon dioxide build-up in our atmosphere, which is possibly creating the greenhouse effect, is probably just as disadvantageous as other exhaust emissions which occur without catalytic converters being fitted to cars. Nevertheless, it is a step in the right direction as carbon dioxide is significantly less damaging to the environment than other pollutants that come out of car exhaust systems.
If we offer that modest financial incentive of 20 per cent. of the special car tax, which is a penalty that the British car purchaser has to pay, that would be a small but not insignificant factor in encouraging motorists to specify that catalytic converters be fitted to their cars when they buy them. The special car tax is something that the motor industry imagined—perhaps in error—was to be a short-term measure when the original purchase tax was phased out. The Government of the day decided that they wished to maintain their revenue and introduced a 10 per cent. car tax. On top of that, 15 per cent. value added tax was added. The motor industry has long hoped that that special car tax, which is more or less unique within Europe, would be phased out gradually over the years so that we could establish a regime of taxation on motor vehicles similar to that which obtains throughout most of the European Community. As 1992 approaches, of course we shall wish to harmonise our tax regime with those in the rest of Europe.
The rebate is a small step, but on a £10,000 car the sort of concession that the new clause advocates would cost perhaps £200. It would cost, for instance, £289 to fit a catalytic converter to a Mini. By allowing that 20 per cent. on the special car tax, the Government will in effect be giving the consumer £80 to encourage him or her to buy a car fitted with a converter. That is not a generous amount, but it is a significant indicator that when it comes to environmental issues the Government mean business.
Such a sweeping change may mean that the Government will have to consider at length the desirability of adopting such a measure, which would be widely encouraged by the motor industry. Many European car manufacturers already fit catalytic exhaust systems—certainly they do in Germany—and if British manufacturers could be encouraged to fit them sooner rather than later, economies of scale would be geared up for the time when the fitting of such devices is mandatory, in 1992. The Government should consider carefully this modest


measure, which carries on from the bold initiative of reducing the cost of lead-free petrol and should be widely supported.

Sir Hal Miller: Now is not the time, although certainly it is the place, to debate the motor industry's detailed complaints about the special car tax and the way that the industry has, in its view, been singled out for the most unfair and prejudicial treatment. I shall not rehearse those arguments, except in supporting my hon. Friend the Member for Birmingham, Northfield (Mr. King), whose initiative in proposing the new clause I value highly, as it makes a significant contribution to the debate on motor vehicle pollution.
Value added tax is based on the basic price of the car plus the special car tax, so it is a tax on a tax. As we move towards 1992 and the approximation of motor vehicle taxation, I shall use the debate on the proposed new clause to explore the mind of my hon. Friend the Minister as to how the future motor vehicle tax regime will operate. The Commission proposes that we should move to a regime of value added taxes and dispense with other and, in many cases, higher taxes. The suggestion is that value added tax should be levied at the rate applying in the purchaser's country, which would be determined by the vehicle's country of registration.
Britain's special car tax is a form of sales tax and should be included in the VAT, which may need to be adjusted for that purpose. As we move towards 1992, it is important to decide how motor vehicle taxation is to operate. Manufacturers need to proceed on the basis of certain assumptions, because their model policy is determined some years in advance.
My hon. Friend the Member for Northfield referred eloquently to the environmental benefits of catalytic converters, to the precedent set by the lower excise on unleaded petrol, and to the efforts of other European countries—notably West Germany—to expedite the fitting of converters. There has been a good deal of propaganda from catalytic converter manufacturers that their cost is not at all what others state it to be, and that it has been greatly exaggerated. It is a matter not just of the cost of the metal in the catalyst box. One cannot run a catalyst without an engine management system, which is where a large element of the expenditure comes, quite apart from the later costs to the consumer arising from maintenance and fitment.
There is much uncertainty about the cost of maintaining the catalysts and their lifespan. On a recent visit to a car manufacturer that had fitted catalysts, I was given lifespans ranging from 25,000 miles to 100,000 miles. There is much uncertainty about the frequency with which they need to be replaced. It is worth bearing in mind that they cannot be serviced; they must be junked and then one starts again. That means taking off the whole exhaust system, and those of us who have had to replace those systems know what is involved.
My hon. Friend the Member for Northfield and I are trying to encourage our friends in the Government to consider the introduction of some incentive in the shape of a reduction in the additional cost incurred by fitting catalysts. We carefully did not pitch the amount of the incentive but gave a band that could be considered. Such an incentive would encourage the earlier and wider use of catalysts. It would be for the benefit of the environment

and would be a powerful incentive for our manufacturers to bring themselves up to date on a fully competitive continental basis.

Dr. John Marek: I listened with interest to the hon. Member for Birmingham, Northfield (Mr. King). The Opposition would welcome it if he put his name down for the Finance Bill Committee next year. We have discussions year in, year out on excise duties and other taxation on vehicles and not a Conservative Back Bencher who has any knowledge of the subject will stand up and take issue with us so that we can make the policies and duties better suited to Britain. I hope that the hon. Gentleman will take that request seriously.
The hon. Gentleman is wrong when he says that the Government mean business on environmental issues. If it had been left to the Government, we would not have had an agreement on catalytic converters or clean car engines. That was forced on the Government by the European Community, and we must get that point clear.
The Opposition are passionately pro-environment, and we sympathise with the basic aim of the new clause. We take issue, however, with the method chosen. As we must change our exhaust systems and introduce catalytic converters in a few years' time, what is the point of having an incentive? I do not understand the rationale behind the speeches of the hon. Members for Northfield and for Bromsgrove (Sir H. Miller). The incentive is unnecessary.
The difficulty is—I am sure that the Economic Secretary will say the same—that if an allowance is made for catalytic converters, the Treasury will be inundated with pleas for allowances for all sorts of additions to cars. Many kinds of transport systems will be fair game for different people with different interests.

Sir Hal Miller: I am sorry to interrupt the hon. Gentleman, but the logic of his argument escapes me. I do not recollect his opposing the incentive of the reduction in the excise duty to encourage the greater use of lead-free petrol. I am sorry if, in my anxiety to be quick, I did not make it plain that the purpose of the new clause is to speed up the introduction of catalysts.

Dr. Marek: The two issues are very different. There is always a choice between leaded and unleaded petrol, at least for some cars. I have recently seen something called "super leaded" in garages. It costs the same as unleaded, but I wonder whether petrol companies will continue to rip off motorists by charging high prices.
There is no question of providing an incentive to fit catalytic converters. It has to be done. We have agreed it with the EC. There are cases for incentives in certain circumstances, but they should be argued on their merits. I regret that I have to say that I do not think that the case has been proven here. I would rather that the money which would be lost to the Treasury were spent on other environmental concerns.
How much does the Economic Secretary think the Treasury would lose if the new clause were accepted? Can he think of better environmental uses for the money? I sympathise with the new clause, but I think that it is the wrong approach.

Mr. Lilley: I am sure that the House joins me in paying tribute to my hon. Friends the Members for Binningham, Northfield (Mr. King) and for Bromsgrove (Sir H. Miller),


who have always been lively advocates of the interests of the British motor car industry and who today have wedded that interest to their concern for the environment.
My hon. Friend the Member for Northfield mentioned the success of the increased reliefs and changes in the treatment of two-star petrol in the Budget. It has been immensely successful—more successful than I expected at the time. The latest figures, at 14 June, show that unleaded petrol sales account for 20·6 per cent. of the whole as compared with only 5·5 per cent. the month before the Budget, and that more than 50 per cent. of filling stations sell it as against about 22 per cent. earlier this year.
My hon. Friend drew an analogy between that and the tax relief proposed in new clause 18, but I do not think that the analogy is valid. Excise duty applies to all cars, not just new ones, and there is no mandatory use of unleaded petrol in the offing. Those are my reasons for suggesting that the House should not accept the new clause. The benefit that is proposed offers a remission of an element of car tax which is levied only on new cars. The incentive would therefore apply only to the installation of catalytic converters in new cars. In 1992, however, such installation will be compulsory for all new cars sold in the EC, and I imagine that before then it will be normal for them to be fitted as producers gear up with new models. We are being asked to introduce a tax relief for a short time only, and one which applies only to new cars. Tax reliefs should always be introduced with caution and I am not minded to recommend to the House a relief with a short life and relatively little coverage.
Both my hon. Friends, but especially my hon. Friend the Member for Bromsgrove, mentioned their resentment at the existence of a special car tax. At least 10 EC countries have a higher rate of value added tax, or a registration tax, if not a special car tax like ours, so the tax is by no means abnormal. Our VAT and the special car tax is similar to what is charged in other countries.

Sir Hal Miller: While my hon. Friend is dealing with the practice of our EEC partners, will he answer my question about what is to happen in future? Will the car tax be subsumed in VAT?

Mr. Lilley: I apologise for not responding to that specific point without prompting. The Commissioner has put forward proposals which are being considered by the Government. They acknowledge that special consideration

will have to be given to items such as car tax on motor vehicles. The general presumption is that they would be rendered uniform. However, we have tried to work out proposals in general which will not require central bureaucratic determination of tax rates in individual countries and will leave as much discretion to individual countries as possible while removing any unnecessary fiscal controls at frontiers. That is the line that we are pushing, but we are a long way from achieving the unanimity that is required on that issue in the Community.
The hon. Member for Wrexham (Dr. Marek) asked what the proposal would cost. It would cost about £3 million in revenue forgone for every 1 per cent. of motor cars which took advantage of the incentive and had the equipment fitted. Obviously, one has no idea how many would do so, but as 1992 approached a great many cars would be so fitted, not in response to the incentive but in anticipation of the time when it would become mandatory. We should thus have to bear the cost with no extra benefit. That is one reason why I am not urging the House to accept the new clause.
We accept that the new clause seeks to encourage producers and car drivers to recognise the value of such equipment from an environmental point of view and seriously to consider voluntarily insisting on their incorporation in any new vehicle which they may buy ahead of 1992. 1 welcome that spirit, but I hope that the new clause will not be pressed to a vote.

Mr. Roger King: I have listened, as my hon. Friend the Member for Bromsgrove (Sir H. Miller) will have done, with a great deal of interest in the hope that my hon. Friend the Economic Secretary would give us some encouragement to the effect that our proposals met with some enthusiasm. I understand the problems of introducing a further tax incentive such as this. The aim of the new clause was simply to give some added impetus to what will obviously happen anyway in 1992. It would have shown clearly that we wished to proceed faster rather than slower along the lines of the EEC proposal.
Despite the unbridled optimism of my hon. Friend the Member for Bromsgrove and myself that we would have the Opposition's support in this matter, it is clear that they have no bottle for a fight on this. I beg to ask leave to withdraw the new clause.

Motion and clause, by leave, withdrawn.

Clause 20

FIRST-YEAR ALLOWANCES FOR SHIPS

'In paragraph 2(1) of Schedule 12 to the Finance Act 1984 after sub-paragraph (b) there shall be inserted the following sub-paragraphs:—
(c) with respect to capital expenditure incurred on or after 1st April 1989 on the provision of ships, the words 'one-half;
and before the words 'no first-year allowances' there shall be added the words 'subject to sub-paragraph (c) above'.
(d) in its application to capital expenditure incurred on or after 1st April 1989 on the provision of ships section 44(4)(a) of the Finance Act 1971 shall have effect as if the word 'or' at the end of sub-paragraph (i) were omitted and as if sub-paragraph (ii) were omitted.".'.—[Mr. Shore.]

Brought up, and read the First time.

Mr. Peter Shore: I beg to move, That the clause be read a Second time.
I know that new clause 20 has support in all quarters of the House. That is self-evident from the names of the right hon. and hon. Members who have joined me in tabling it. Anxiety about the disastrous decline of the British merchant fleet has been expressed in the Chamber on many occasions in recent years. No fewer than 234 hon. Members have put their names to early-day motion 429 which, among other things, urges
the primary importance, with an ageing fleet, of the early provision of fiscal and other measures to encourage British shipping companies to undertake the substantial re-investment in ships which will be needed if the decline of the British-owned and controlled merchant fleet is not to accelerate again over the years immediately ahead.
New clause 20 proposes the reintroduction of a 50 per cent. first-year allowance for capital expenditure on new ships. The much-reduced British-owned shipping fleet is steadily aging, and assistance with the heavy cost of replacement is essential if we are to avoid a further decline, let alone reverse the trend of the past decade or so.
10.45 pm
With a record Budget surplus that is likely to be repeated—certainly this year—I do not think that the cost is of real concern to the Treasury. According to the Inland Revenue's own gloomy estimates, with which the Select Committee on Transport was provided last year, the cost of an additional 50 per cent. investment allowance was expected to rise to a maximum of £200 million a year for a two-year period, and then to decline to about £90 million by 1995–96. Our proposal is more modest: it is not additional to the existing 25 per cent. allowance, but in place of it. That will cost not £200 million a year at the peak, but more like £140 million.
The principal objection rehearsed by Treasury spokesmen on previous occasions when help for the shipping industry has been discussed is that the introduction of investment allowances runs counter to the general thrust of the Government's corporation tax policy, the general effect of which has been to reduce the rate of corporation tax on profits substantially and at the same time to abolish allowances against capital expenditure. I do not propose to challenge that general philosophy tonight, but I should like to state as strongly as I can why I believe that shipping should be the exception to the corporation tax rule.
First, world shipping markets are not free. Governments intervene, in varying degrees, in capital and crew costs, and many reserve some part of their trade for

their own nationals. Third world countries have their own special shipping regime; the Soviet Union, eastern Europe and China subsidise their shipping on a massive scale; the United States protects its own merchant navy. In the European Community there is no common shipping policy. Most European Community countries assist their own shipping industries with many forms of subsidies, grants, tax concessions and the like. Let me give just one example: German shipowners have the benefit of accelerated depreciation, investment grants and very low interest rates. Not surprisingly, there is twice as much tonnage on order for the West German register as for the United Kingdom register today.
There is, therefore, no level playing field in European or world shipping. To refrain from assisting our own shipping industry with its replacement costs is not to operate a hands-off, non-interventionist policy, but positively to discriminate against our own shipping. It is a profound paradox that the United Kingdom, an island nation more dependent on shipping for its imports and exports than any other European country, should—virtually alone among the west European nations— offer no protection or assistance to its merchant fleet.
My second reason for urging the Government to accept the new clause is the direct contribution that British-owned shipping makes to the country's overseas earnings. When the 1984 Budget removed the British shipping industry's main tax incentives to invest, the balance of payments was remarkably healthy. Unhappily, that is no longer the case. We now face massive deficits. The shipping industry is still a major earner of foreign exchange—the third largest invisible earner after financial services and tourism—and there is a close correlation between its foreign exchange earnings and the size of the fleet. An enlarged United Kingdom-owned fleet would generate, or save, much of the additional foreign exchange that the country so badly needs.
My third reason is that our Merchant Navy is essential to the nation's defence during a period of tension or war. It gives direct support to the military, it is essential for the rapid reinforcement of Europe from North America, and is crucial for the continuing economic re-supply of the civil population and industry in a period of conflict. The United Kingdom fleet has already shrunk to a level where all three tasks can no longer be undertaken. This was broadly the conclusion of the Select Committee on Defence in its report last year and is the subject now of a major NATO study.
There is one other negative argument that the Minister may be tempted to deploy: that investment allowances, before their abolition in 1984, did not prevent the rapid rundown of the United Kingdom's Merchant Navy. True; but it is difficult to think of any measure that would have prevented a substantial decline in United Kingdom and, indeed, in world shipping in the decade of severe recession that is now ending.
At the end of 1985, the year after the abolition of capital investment allowances, 7·5 per cent. of world shipping was laid up. Today that figure is down to 1 per cent. Freight rates are improving; shipbuilding capacity has, tragically, been sharply reduced; the world fleet is aging; and it is clear that a large part of the existing world fleet will have to be replaced over the next decade.
The effects of this can be seen in the sharp rise in the price of both new and second-hand ships. The key question for the shipping entrepreneur is how the


enormous capital costs of replacement can be financed —which depends in turn on the fiscal regimes applied by the Government for such investment, because this is the major variable in capital costs.
We have now a major opportunity to revive our merchant fleet. Strengthening the incentives to invest in ships will enable the United Kingdom to gain a substantial share of new shipping to overcome the handicaps of unfair competition, to strengthen the balance of payments and to help maintain the credibility of our defences against the threat of conventional war.
The maintenance of a large, modern and efficient Merchant Navy is essential to the well-being and security of an island nation. I do not believe that the Government would dispute that assertion. I urge them therefore to accept the proposal in new clause 20.

Sir William Clark: I support the right hon. Member for Bethnal Green and Stepney (Mr. Shore). He has pointed out the importance of the shipping industry to our invisible earnings. I have no vested interests in the shipping industry. The United Kingdom is unable to compete with other countries in many ways. At one time the shipping industry benefited from the free depreciation allowance, but it has now disappeared. The 25 per cent. depreciation allowance has taken its place.
I well understand why my right hon. Friend the Financial Secretary to the Treasury will say that because corporation tax has been reduced to its present level capital allowances must be reduced, too. The shipping industry, however, is in a slightly different position. It is one of the most competitive international commodities, if it be a commodity, that there is. Shipowners in other member states of the European Community are provided with far better allowances.
The new clause provides for a 50 per cent. capital allowance. There would be no loss of revenue. The shipping industry faces a cash flow problem. If one cannot obtain a capital allowance of 50 per cent., the capital that is required to buy a ship will put British shipowners at a disadvantage vis-à-vis their foreign competitors. In 1992 the United Kingdom's capital allowances will probably be the least advantageous of all.
The Government should take another look at shipping. It may be too late at Report stage of this Finance Bill to do something about it, but I hope that my right hon. Friend the Minister will give some assurance that the Government are seized of the importance of the shipping industry and are aware that our competitors are far more generous to their shipping industries than we are, although our corporation tax has decreased.
The right hon. Gentleman referred to the surplus in our domestic budget. I am not suggesting that we should spend that, but the shipping industry has a cash flow problem. If our shipowners could buy a ship with a 50 per cent. rather than a 25 per cent. allowance, it would put the nation in a better competitive position. I urge my right hon. Friend to consider the new clause sympathetically.
The size of our merchant fleet has continued to decrease and I can give the statistics to show that. As an island nation we depend on our shipping industry for more than our defence. Let us encourage British shipping rather than allow foreign shipowners to move our goods in and out of

our ports because they have better fiscal arrangements than we have. For those reasons, I support the right hon. Gentleman.

Mr. Julian Brazier: As is often the case, we find ourselves late at night discussing important matters, but if the hour is late, the quality of the first two speeches makes up for it. I am honoured to follow the right hon. Member for Bethnal Green and Stepney (Mr. Shore) and my hon. Friend the Member for Croydon, South (Sir W. Clark).
I used to work as a management consultant and many of my clients were shipyards. As I spoke at length in Committee I shall add only a few brief points. Other countries provide advantages for their shipping industries in many ways that we do not. Besides the visible methods of assistance, including capital allowances, tax-free reserves, advantages in personal taxation to seafarers, and direct Government subsidies and grants, which together ensure that we have a higher effective rate of tax on shipping, whatever the nominal rate, than most other countries, there are three hidden ones.
First, safety is expensive and many of our competitors are not interested in it. That immediately gives an unavoidable handicap to our shipowners because no one wants dangerous British ships. Secondly, some seafarers in foreign merchant navies are disgracefully badly paid. That is another unavoidable handicap for us. Thirdly, considerable amounts of cargo reservations are sometimes legally enforced and at other times achieved through back-door arrangements.
Our shipowners operate with considerable fiscal and other handicaps. It is sad that as a result of those considerable handicaps the British merchant fleet has not only declined—nearly every merchant fleet has—but declined compared with other fleets. The Greeks have by far the biggest fleet in Europe, but there is no taxation on Greek shipowners, except a minuscule tonnage tax.
I share the Government's distaste for capital allowances as a normal medium for industry. I wrote a pamphlet calling for the abolition of capital allowances and all forms of regional capital grants some years before it became the fashion. However, it seems to me inescapable that shipping is a special case. If we want to restore British shipping to even part of its former standing, we must face up to these handicaps and to the enormous difference between the way in which we treat our shipowners and the way in which other countries treat theirs.
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I do not want to go into all the reasons why it is important to restore shipping, because they have already been well covered by the two previous speakers, but I will mention two reasons briefly. First, besides the immediate effects of shipping, there are many peripheral areas that bring in considerable foreign exchange, such as the Baltic exchange and the shipping insurance side of Lloyd's. They require a captive domestic market if they are to continue to bring in the considerable export earnings they bring in at present, which are over and above the export earnings mentioned for shipping itself.
Secondly, I echo again the defence considerations—my right hon. Friend the Financial Secretary would be surprised if I did not—which are real. The arrival of the NATO report on strategic shipping is becoming rather like the second coming. However, it will come at some point


and it is common knowledge that it is certain to show that NATO has insufficient for its needs in times of tension, let alone war.
I sum up by saying that two early-day motions—one in the previous Parliament and one in this—have shown that the majority of Back Benchers of all political persuasions are concerned about the issue. Two Select Committees—on Transport and on Defence—have expressed real worries on the matter. I put it to my right hon. Friend that if he finds new clause 20 unacceptable for one reason or another, we must look at what we can do for our shipping. If we stand back and do nothing and, in effect, say unilaterally that we believe in the free market and not in intervention—while almost every other country with a significant fleet is intervening and supporting its fleet—the little temporary recovery we have in shipping, which gives us a bit of a breathing space, will disappear and our merchant fleet will continue to decline.

Sir Charles Morrison: It may be surprising that an hon. Member representing a wholly land-locked, largely rural constituency receives two or three letters a year expressing concern about the inadequate size of our merchant fleet, yet that is my lot. I have several constituents who are still well aware that we are an island race and that we depend to a considerable extent for our existence on shipping and overseas trade. If our country were a vast, land-locked area which was entirely self-supporting, we could perhaps disregard the need for a merchant fleet and even go further and say to ourselves that not having a merchant fleet of our own would help developing countries. That concept, however, does not exist for us. As my hon. Friends the Members for Canterbury (Mr. Brazier) and for Croydon, South (Sir W. Clark) and the right hon. Member for Bethnal Green and Stepney (Mr. Shore) have pointed out, we are all aware that we remain an island. We may soon he attached more closely to continental Europe by means of the Channel tunnel, but a huge proportion of the basis of our national existence will still depend on shipping.
I do not think that my right hon. Friend the Financial Secretary can argue that a merchant fleet is unnecessary. Indeed, he has not argued that. As my hon. Friend the Member for Croydon, South pointed out, it is important in terms of allowances that we should be able to compete with the assistance that shipping receives in other countries. There has been a pretty continuous deterioration in the size of our merchant fleet. That in my view is shameful, but, regardless of that, I believe that from a strategic point of view we are putting ourselves in an increasingly weak and dangerous position.
I hope that my right hon. Friend the Minister will take full account of the new clause. For all I know, it may not be properly drafted and may need further thought, but I hope that my right hon. Friend will at least express some sympathy with the proposition behind it.

Mr. Nicholas Brown: My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) was right to remind the House of the strategic importance of shipping and, indeed, shipbuilding to our country. As a number of hon. Members have perceptively pointed out, our country is an island, and the conveyance of goods by sea is therefore important to us—indeed, 92 per cent. of out trade is carried in ships. I should have thought that it was fairly clear to everybody, therefore, that shipping has a

unique place in our island's economy. My right hon. Friend the Member for Bethnal Green and Stepney asks the Treasury to recognise that unique place. I suspect that the Treasury will not do so. I say that because we have explored this matter before.
Help for shipping, needed though it is, is not the same as help for domestic shipbuilding, needed though that is. Although the EEC has no common policy on shipping, it certainly has one on shipbuilding. That is embodied in the sixth directive on shipbuilding, which provides for intervention funding for some merchant yards in the different member states.
The new clause would not necessarily mean that those who availed themselves of the tax concession would order new vessels in British yards, because they could purchase abroad or purchase secondhand ships. The new clause would not necessarily help the domestic merchant shipbuilding industry, which is certainly in need of help. Just about the only chance of survival for our merchant shipbuilding industry lies in relocating to Northern Ireland.
The shipping industry is deserving and worthy of support, and the new clause has considerable merit. I was taken by the statement of the hon. Member for Canterbury (Mr. Brazier) that he had acted as a consultant for a number of shipyards. That alone does not explain the serious crisis that British shipbuilding faces; the explanation has to be sought elsewhere. I am able to name the guilty man—the man responsible for closing down merchant yards when he was at the Department of Trade and Industry and for starving warship yards of defence orders when he was Minister of State for Defence Procurement. That man is, of course, the Financial Secretary, and he will no doubt reply to the debate by telling the shipping industry that it will not receive the assistance that every hon. Member who has spoken in the debate says it so badly requires.

Mr. Norman Lamont: The right hon. Member for Bethnal Green and Stepney (Mr. Shore) has a long-standing interest in shipping and speaks with great authority. Some months ago, he came to see me about a specific tax matter, which might have been dealt with in this Bill. The right hon. Gentleman argued vigorously against the proposal because of the effects that he thought it might have on the shipping industry. Having listened to representations from the right hon. Gentleman and others, we decided not to proceed with that tax change. I hope that that experience will at least have confirmed him in the view that we try to listen and are not indifferent to the plight of the United Kingdom shipping industry.
The new clause would introduce a special 50 per cent. first year allowance for capital expenditure incurred on or after 1 April 1989 in the provision of a ship, whether new or second hand. It would permit also a writing-down allowance to be taken for the same period, thus providing allowances totalling 621/2 per cent. in the year of acquisition instead of the 25 per cent. that would otherwise normally be available.
As the right hon. Member for Bethnal Green and Stepney well knows, the issue of accelerated depreciation for ships is by no means new. It was discussed at considerable length in the Finance Bill debates in 1984 and 1985. Clauses with the same objective were tabled in 1986 and 1987. There was a further debate when last year's Finance Bill was considered in Committee, when a nearly


exactly similar proposal to that in the new clause was not accepted. As we had the issue raised in almost exactly the same form from 1984 to 1988, it is not surprising that the right hon. Member for Bethnal Green and Stepney was able to anticipate many of the arguments on which I rely.
We also debated these issues when my hon. Friend the Member for Canterbury (Mr. Brazier) introduced an amendment that sought that a balancing charge arising on the disposal of a ship should be rolled forward and relieved from tax provided that the proceeds of the disposal were reinvested within up to four years. As the right hon. Member for Bethnal Green and Stepney has recognised, relief on these would reintroduce to the system a significant measure of accelerated depreciation. The new clause would go further still by allowing the entire cost of a ship to be written down to a residual 10 per cent. over five years or so. As ships are long-life assets with working lives greatly in excess of five years—perhaps 18 to 20 years, on average—a depreciation system that provided allowances on the scale that is proposed would constitute a substantial element of acceleration.
The right hon. Member for Bethnal Green and Stepney recognised that our reform of corporation tax is based on the reduction of allowances to 25 per cent. per annum, combined with the reduction in the rate of corporation tax, with the result that the rate of corporation tax is the lowest in Europe and one of the lowest in the industrialised world. That is something that very much affects most industries, including the shipping industry.
My hon. Friend the Member for Canterbury and I debated these matters extensively when the Bill was being considered in Standing Committee. He argued that perhaps the more marginally profitable shipping industries were better off under a system of allowances than a lower rate of corporation tax combined with smaller allowances. I in turn argued that the Government believe that the purpose of the tax system should be to encourage profitable investment and profitable industries and not merely the marginally profitable or the near loss makers.

Sir William Clark: The fact that these matters were debated from 1984 to 1987 is completely irrelevant. Why is it that the merchant fleet continues to decline? It is far better from a fiscal point of view to have a ship under a foreign flag. Corporation tax is lower here than in many other countries, but the shipping industry is being penalised in Britain when comparisons are made with competitor countries.

Mr. Lamont: I cannot agree with my hon. Friend's analysis. I do not believe that the period of the greatest decline in British shipping, to which the right hon. Member for Bethnal Green and Stepney referred, was linked to the tax system. The right hon. Gentleman acknowledged that, even when we had 100 per cent. first-year allowances, that did not halt the dramatic decline of the fleet between 1975 and 1986 from 33 million gross registered tonnes to under 11 million tonnes. Fundamental factors—not tax factors—were in operation, and they were connected with excess capacity and, obviously, with the structure of the British fleet. They played a large part in the decline of the fleet during that period when we had 100 per

cent. depreciation allowances, and they were unable to stop the decline at the time. There have been structural and capacity factors.

Sir William Clark: On the 100 per cent. allowance, does my right hon. Friend recollect what our corporation tax was?

Mr. Lamont: People were able to use the 100 per cent. allowance and go on investing, and the actual effective rate of corporation tax was much lower. My hon. Friend is looking extremely puzzled. I am not saying that tax matters are unimportant or have no part to play, but the decline of the British fleet has been due to much more deep-seated reasons than tax alone.

Mr. Brazier: My right hon. Friend is absolutely correct, but his remark does not detract from the new clause. Surely the reasons for the great decline which occurred in every merchant fleet in the world in the 1970s were the deep-seated factors of overcapacity and overinvestment to which my right hon. Friend referred. Now that we have come out of that period of overcapacity, which the right hon. Member for Bethnal Green and Stepney (Mr. Shore) described, the precise reason why other fleets are now expanding while the British one is static—and we are falling as a percentage of the EEC fleet—is this country's fiscal factors, which are different from those in other countries.

Mr. Lamont: That is open to argument if we say that the reduction in the fleet in the past was due to non-tax reasons, but today we believe that it is due to tax reasons. I do not believe that our tax system leaves shipping at a massive disadvantage. We must look at the tax system in the round. We must compare allowances and rates and also look at local taxes. We must look at the overall fiscal position of one country compared with another. It is not proven that British shipping is at a tax advantage compared with all its competitors. I have given my view of the fundamental factors that have been responsible for the decline in shipping. I do not believe that one can suddenly say that they are different, even though those were the reasons for the decline in the past.

Sir Charles Morrison: My right hon. Friend is missing the point. He is speaking from the Government Front Bench. I put it bluntly that there is no point in arguing a Treasury brief. Hon. Members are concerned about the steady decline in the British merchant fleet. That is what perhaps surprisingly concerns my constituents. They are more and more worried that we are living on an island and our merchant fleet is getting smaller and smaller, as my hon. Friend the Member for Canterbury (Mr. Brazier) pointed out. We probably could not even mount a Falklands-type campaign. The situation is getting worse, not better. It is all very well arguing the details from the Treasury Bench, but the Government must consider whether or not we are to have a merchant fleet. What is the answer to that?

Mr. Lamont: I apologise to my hon. Friend the Member for Devizes (Sir. C. Morrison) if I sound too like a Treasury Minister. I have great difficulty in disguising myself on occasions. It is difficult to disguise myself when I am replying to comments about tax and the Finance Bill.
It is utterly astonishing that I should sound like a Treasury Minister. I apologise unreservedly to my hon. Friend for the disguise that I have put on.
Of course, I accept what my hon. Friend the Member for Devizes has said about the strategic importance of merchant shipping and about the importance of the British merchant fleet for defence reasons. My hon. Friend the Member for Canterbury raised that in Standing Committee when we discussed his amendments. I assured him that we shall bear in mind the recommendations and remarks of the Select Committee on Defence and that the matter will be kept under review. I shall draw the attention of my colleagues in both the Ministry of Defence and the Department of Transport to what has been said.
The Ministry of Defence very much disagrees with what my hon. Friend the Member for Devizes has said and believes that it would still be possible today to mount an out-of-area operation involving the British fleet. As my hon. Friend has said, I am a mere Treasury Minister and I can assure him that I should not make that statement without having had some advice from those who know about these matters.
I have dealt with the fiscal problems as I see them. It has been said that shipping is a slightly different case. I am afraid that all sorts of industries also regard themselves as different, especially capital-intensive industries and the chemical and engineering industries. Even the film industry has a great attachment to capital allowances. I believe that the lower rate of corporation tax, combined with the lower allowances, has been of great benefit to British industry overall. That does not mean that substantial sectors of heavy industry do not raise these issues all the time, but, despite what my hon. Friends have said, it would be extremely difficult to distinguish between shipping and other industries.
As in the measures that we have taken in other Finance Bills, we have shown here that we are not indifferent to the problems of the shipping industry. Indeed, we made a special relief, through our changes on foreign earnings deductions, to meet some of the problems that had been raised about low-wage seafarers and low-wage competition. We leant over backwards to try to have a tax system that would minimise the disadvantages.
We have also used the business expansion scheme for both chartering and investment in ships. I have already referred to the representations that we received from the right hon. Member for Bethnal Green and Stepney and to the fact that we have listened to those representations as well as to those from shipping when we discussed residence.
As my hon. Friend the Member for Devizes said, this is not just a tax issue; it is also a defence issue. We are keeping the matter under review, particularly because other Departments are looking at the Select Committee's recommendations. However, I am afraid that, although we will look at the matter in that way, I cannot recommend the acceptance of the new clause, which would go sharply against the thrust of our business tax reforms.

Mr. Shore: I shall not pretend to conceal my disappointment and frustration, but I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 23

CHILD TAX ALLOWANCE

'In relation to income tax there shall be an allowance of £100 for each dependent child in full time education under the age of nineteen'.—[Mr. Frank Field.]

Brought up, and read the First time.

Mr. Frank Field: I beg to move, That the clause be read a Second time.
Normally when one moves a new clause, one of the ploys of the Government Front Bench is to point out the inadequacies in the drafting. As I wish to begin and to continue in a conciliatory mood, at least until we get to the vote, any constructive amendments to my draft new clause will be willingly accepted. I am aware that, because of the way in which the new clause is worded, it will exclude children below the school starting age, which was not the intention. An odd amending word could put that right. I am also aware that the present wording does not link the provisions to the Rooker-Wise indexation amendment to which the Chancellor of the Exchequer hyphened his name and I am sure that there are other things on which the Opposition would be only too happy to meet the Government.
I begin by referring briefly to what has been happening to the living standards of families with children and by comparing that with other sections of the community that are childless. To help me to do this, I draw on a note which the Family Policy Studies Centre published today. It looked at two possible ways of measuring how effectively our fiscal and benefit system has looked after those with children. The Government would be right to say that it is wrong to consider the crude tax thresholds because they do not include the tax-free element in child benefit. In place of tax thresholds, the buzz word now is tax break-even points. I do not want to be accused of using an inaccurate measurement, so I shall follow the Government line of break-even points.
There are two clearly discernible trends in the Government's record over the past decade. I am sure, first, that the Minister will emphasise that the break-even point for all households, whatever their composition, has risen. That has not always been so in the post-war period. But a second pattern emerges from breakdown into households of differing composition. The break-even points have risen faster for those without children than for those with them. So, although the tax burden has been lifted from households that pay tax, it has been lifted most slowly from people with children. The Government have changed the tax burden overall, but it has moved in the past 10 years.
The Government would also be right to tell us—and Conservative Members who support the new clause—that examining the tax burden is an inadequate way of judging the Government's record on families. We need to look at households' real income, and include transfer payments. The second calculation contained in the briefing note, prepared, needless to say, by the Library, considers the real income of households of different sizes. It also shows an improvement for all households, but differences between those with and those without children. Real income of those not responsible for children have risen faster.
In the past, the House has had two ways of dealing with the tax burden on and the benefit advantages for families with children. First, we had child tax allowances, then


child benefit. When the Government made their past two uprating statements, I noticed that some Conservative Members said that, had child tax allowances existed still, the Government would not have got their statements through on a vote. Conservatives would have voted for the reintroduction and increasing of child tax allowances.
The Government have made it as plain as they can that they will not increase child benefit this side of the next election. The Opposition can therefore go in for gesture politics and insist at every uprating statement that child benefit should be increased, knowing that it will not be. We can then withdraw with our feathers in the air, knowing that families will get nothing. Or we can act more seriously and say that the challange to the Government will grow during this Parliament if they do not uprate child benefit in line with the other tax allowances and benefits that affect the living standards of the people who depend on them.
I want real, not gesture, politics to prevail. Should we be successful tonight, a future radical Labour Government would be free to move any revenue lost from child tax allowances over to child benefit during their first year of office. In the meantime, we would protect the living standards of families with children, and keep open the option of moving the money over to the child benefit scheme at a later date. That is not a change in direction, but it is one of seeking immediate ways to improve the living standards of families and also to have the option at a later stage of moving those resources over to the child benefit scheme.
It will not have escaped some hon. Members' attention that before Parliament rises for the summer recess we will be dealing with amendments to the Social Security Bill from the other place, and one of those amendments links child benefit increases to changes in family credit. I am, therefore, anxious that we decide tonight whether the House wishes to go down the road of reintroducing child tax allowances to protect the living standards of families with children or whether, when we come to the vote on the Lords amendment in a week or so, all the energies of those who are interested in ensuring that the House represents the interests of households with children will be supporting the amendment that has been made in the other place.
Families with children will win either way tonight. We will either carry this amendment in the Lobby, which will mean that we will see the reintroduction of child tax allowances, and that the tax burden will therefore be diminished, or—

Mr. Walden: I ask the hon. Gentleman a question to which I genuinely want an answer. There are people on middle or upper incomes who have had their taxes reduced from 60 to 40 per cent., who are liable to have their rates reduced as a result of the community charge, who still benefit from higher rate mortgage tax relief and who benefit from the non-imposition of VAT on children's shoes, even though they could afford to pay it. Does what the hon. Gentleman is suggesting put yet more money into the pockets of such people?

Mr. Field: It does, because we are looking at different forms of the distribution of the tax burden. We are looking at it both horizontally and vertically. One way is to look

at which income groups get relief right up to the income scale and the other is to look at each level of income and to study how the tax burden varies between people who have children and those who have not. We are maintaining both points. The hon. Member for Buckingham (Mr. Walden) is shaking his head, but the irony is that it was his intervention during one of the speeches on uprating, when he said that the Government would be in real difficulties in getting this package through if there were child tax allowances, which set my mind working.

Mr. Walden: It was not me.

Mr. Field: I apologise if it was not the hon. Gentleman and I shall happily withdraw that comment.
I shall get back to my final point. Families with children will win either way tonight. We will either carry this amendment in the Division Lobby and thereby affect the tax burden of all families with children, whether they be rich or poor, or the House will have made the clear decision that it does not wish to go down that road and, therefore, when the amendment to the Social Security Bill comes back from the other place, there will be no parting of the ways and no arguments put to divert us from the need to ensure that child benefit is regularly uprated.

Sir Ian Gilmour: I support the new clause, which has been so cogently moved by the hon. Member for Birkenhead (Mr. Field). We are debating justice between different classes of taxpayers and not the micro or macro economic situation. If we were, I would find myself in some difficulty, because I am in favour of increasing taxes at the present time and not reducing them. I believe that only by increasing taxation can we solve our serious economic problems. However, the Government do not agree with me, so that removes that difficulty.
Anyway, I am not altogether confident that we shall win the vote tonight, because the Government probably have the support of enough of my right hon. and hon. Friends who have not heard the debate to defeat the motion. Besides, we are discussing a question of principle as between taxpayers.
Ever since the days of William Pitt, it has been recognised that people with families have higher expenses and more responsibilities than people who do not. The salary system does not, for very understandable reasons, recognise that distinction, so clearly it must be made by the tax system. Much the best way of doing that is through child benefit, but the Government repudiate that on specious, irresponsible and thoroughly inhumane grounds—at a time when they lavish tax cuts on the well-offs and on everyone else.
My hon. Friend the Member for Buckingham (Mr. Walden) jibs at people receiving more money through tax allowances for children but, as far as I know, he and other right hon. and hon. Members—myself included—do not jib at tax cuts that give infinitely more money to the people who concern him. With great respect to my hon. Friend, he does not make a serious point.
The best way of dealing with families with children is through child benefit, but the Government appear to be anxious to repudiate that argument, judging by their behaviour over the past two years. We are giving the Government a choice. Unless they are against families—tout seul, full stop—they must agree either to uprate child benefit in future or to adopt new clause 23. There is no other choice. Otherwise, the Government will be


repudiating the experience of everyday life and saying that there is no horizontal difference between taxpayers of similar income.
Either the Government must come out in favour of child tax allowances, or say, "We thoroughly agree that we behaved very badly, or not very well, over child benefit, and we shall never do that again." If the Government will say that, then of course I will not support the new clause in the Lobby tonight. I have a feeling that the Government will not say that, in which case I shall support new clause 23. Either the Government are in favour of child tax allowances or they are in favour of child benefit. To say that they are against both would be totally irresponsible and quite indefensible.

Mr. Jeff Rooker: In supporting the new clause, I say at the outset that I did not think that I would ever again speak in this House in support of the reintroduction of child tax allowances. Over a period of 10 years, it was mooted that child benefit was not such a success, and before the 1987 general election there was a catching-up period when child benefit was put back on the rails. My hon. Friend the Member for Birkenhead (Mr. Field) reminded me of the real reasons why in 1977 I and my then hon. Friend the Member for Coventry, South-East, now my hon. Friend the Member for Preston (Mrs. Wise), did not include tax allowances in our Finance Bill indexation clause relating to personal tax allowances. We took the view then that as child tax allowances were being phased out and would disappear within two years it would be ridiculous to incorporate them in new legislation.
In 1977, child benefit was being phased in with all-party support, with increasing commitments from right hon. and hon. Members in all parts of the House, including the then Tory Opposition, that child benefit would be viewed just as though it was a tax allowance—which it was, in part—and in terms both of its value and spending power. The point was made that the Finance Bill should not be used to index-link what was then a social security benefit.
As the years passed, it was clear that child benefit did not work out that way. It has been frozen at the same rate for three years and will remain frozen in cash terms until the next general election. There is no indication that there will be any change. The game is up. What the Government have or have not done must be seen for what it is. It is consistent and logical for hon. Members to say that the idea of this universal benefit loses its validity—as the right hon. Member for Chesham and Amersham (Sir I. Gilmour) and my hon. Friend the Member for Birkenhead said—if its spending power is not maintained.
We either accept the consequences of saying that family size is irrelevant to the income of the working family, and throw back decades of social and taxation policy, or we accept that family size is relevant to income and that universal child benefit is failing to do as it should and do something about it. The only thing that the House can do is to reintroduce some form of child tax allowance.
When I was looking through the Committee and Report stages of the Finance Bill of 1977, because I wanted to check what I had said, I found that our present position was forecast by a Conservative Member. I shall give the flavour of what he said to the House on 25 July 1977. He said:
A large number of payments are index linked already that is the point. The long-term benefits are now index linked, with the approval of both sides of the House, to prices or to

incomes, whichever be the greater, and the short-term benefits are linked to incomes only. One reason for arguing the case two years ago was that child benefit seemed to be on the wrong side of the boundary even then.
He was making a point about the refusal to index-link when the legislation for child benefit was considered. I freely admit that I voted with the Government not to do so. I also voted with the Government on personal taxation policy in 1975, but by 1977 I had seen through what was happening. The same Conservative Member continued:
I am confining myself to this one point, and I am saying that if we leave the boundaries of index linking as they will be set in this Bill, the outcome will be intolerable in the case of child benefit and family support. Everyone will have his case for index-linking some further part of the taxation system and so on, but it seems to me that the family situation is the most pressing.
It will be argued—I hope that it will be—that the Government still have complete flexibility to index-link by uprating child benefit or any other form of family support through the tax system, as they wish. But every time one index-links by statute some part of the benefit system or the tax system, one imposes a rigidity on that part of the system, taking away flexibility for the Government … so that inevitably, if they are short of resources or of revenue, they have to move in on the others. Thus, the Government will he left with a strong inbuilt bias towards index-linking personal tax allowances, and for any Chancellor of any party in a difficult year for resources or for revenue, that, it seems to me, will be bad news in respect of child benefit and taxpayers with families, unless … it is the intention of the index linkers, as it should be, to go on to index-linked child benefit"— [Official Report, 25 July 1977; Vol. 936, c. 123–4.]
The person who made that speech is today a member of the Cabinet. He correctly forecast what would happen—except, of course, that there is no shortage of revenue—but that is not the point. The present Secretary of State for Health should be commended on his foresight in putting that warning in the pages of Hansard on Report on the Finance Bill 1977. He saw what was likely to happen and drew conclusions, but I cannot accept the points that were implicit in the intervention of the hon. Member for Buckingham (Mr. Walden).
I understand that there is virtually 100 per cent. take-up of child benefit. I have never come across anyone who did not receive it, did not want it or sent it back. It is a massive benefit in terms of the income of working families. The hon. Member for Buckingham told us why many people do not need the extra help, but we should not greatly deprive the majority who need the extra help because child benefit has been frozen. The hon. Gentleman's case does not hold water. I shall be interested to hear his argument on the Lords amendment to the Social Security Bill.
I hope that my hon. Friend the Member for Birkenhead will press the new clause to a Division. It is important that the House should send out a signal that we are concerned that families' incomes have been eroded as a result of the interaction of the tax and social security systems. That was never the intention and it was never the stated objective of the Government, but that is what has come to pass. The sooner people get to know about it, and the sooner the House acts to redress the balance, the better.

Sir George Young: It is important that we should be clear about what the debate is and is not about. It is not about tackling poverty or giving help to families whose income is below the tax threshold. As I am sure the Minister will say in his reply, those families would not benefit from the new clause. The debate is about


fairness between taxpayers with and without children. It is basically about recognition of the fact that taxpayers who are bringing up children have a responsibility which brings with it costs that are not faced by other taxpayers who do not have children. The tax system used to reflect those costs through child tax allowances.
Child tax allowances endorsed a basic principle of taxation, which is that an individual should be taxed only on his surplus income once his unavoidable expenditure has been met, hence the personal allowances which take people on low incomes right out of the tax net. When a person marries, the tax system recognises his increased obligations by giving him a married man's allowance. If the taxpayer had children, the system used to carry that principle further through the child tax allowances, which reflected the additional obligations of the taxpayer with children.
The problem began when child tax allowances were converted to child benefit, which had two objectives—the one that I have just mentioned and the new one of tackling poverty. Since that conversion, the poverty-tackling role of child benefit has been emphasised, and we have forgotten entirely the other objective of equity between taxpayers. As a result, as the hon. Member for Birkenhead (Mr. Field) explained, the burden of taxation has shifted progressively during the past 10 years from taxpayers without children on to the shoulders of taxpayers with children. I see no sense or equity in that.
It is true that part of the money saved by not uprating child benefit has been ploughed back to help people on low incomes, but that has meant only that the cost of tackling family poverty has been borne not by taxpayers as a whole but by taxpayers who happen to have children, and there is no sense of justice or logic in that either. The switch from child tax allowances to child benefit has been bad news for families. The problem is that child benefit is now public expenditure, and therefore bad, whereas the child tax allowances used to be tax cuts, and therefore good. The litmus paper now turns red instead of blue when the Treasury starts to look at help for families.
The new clause is a gentle reminder that children are not consumer durables to be bought by people who can afford them but not by those who cannot. They are, to use a cliché, the next generation. Bringing them up imposes costs on the parents whereas the benefits are enjoyed by society as a whole when they grow up. The burden ought to be shared, as it used to be shared, through child tax allowances. The costs of bringing up children have switched progressively during the past 10 years, I think unintentionally, away from taxpayers as a whole. The new clause is just a gentle reminder that there is a strong case in terms of horizontal equity for reverting to the system that we used to have.

Mr. Christopher Hawkins: Ability to pay has always been a primary basis of our taxation system: we should not pay tax until we earn enough to feed, clothe and house ourselves, our wives and our children. That is why we had the tax allowances for children. We replaced that—I was one of those outside the House who supported the change, although I am beginning to regret having done so—with child benefit because the tax allowance suffered from two major drawbacks. One was that it was worth much more to a top rate taxpayer than it was to a standard

rate taxpayer, and the other was that it was worth nothing at all to someone who earned too little to pay income tax. For those perfectly laudable reasons we replaced the tax allowance with child benefit, not realising when we did so that many of our colleagues would forget that the child benefit system that we now have replaces a tax allowance.
The arguments for child benefit are just as good today as they were when it was introduced. Unfortunately, some of my colleagues now argue, as my hon. Friend the Member for Buckingham (Mr. Walden) did, that child benefit is objectionable because it goes to well-off people who do not need it. He should explore and pursue the logic of what he is saying. On that logic we would abolish the single person's allowance, the married person's allowance, mortgage interest tax relief, which is worth more to the better off, the business expansion scheme tax relief and pensions tax relief.

Mr. Tim Yeo: What my hon. Friend has just suggested is strongly supported by the hon. Member for Birkenhead (Mr. Field).

Mr. Hawkins: I shall not support the new clause, although, as I am trying to explain, I greatly sympathise with the motives behind it, because so many people have forgotten that child benefit replaced a tax allowance.
If we do not abolish all the benefits that go to people who do not really need them and benefit the better off more than the worse off, why, uniquely, are we choosing to pick on people with children, those least able to afford to be picked on?
That applies to people at all income levels. A person earning £50,000 per annum with children has less ability to pay than someone earning the same amount without children. It is a fundamental principle of our tax system that the difference in the ability to pay of those with and without children should be reflected in the tax burden. That is equally true of a person earning only £8,000 a year. Those with children have less ability to pay than those without children.
That is why we should either have a tax allowance for children or retain child benefit and consistently uprate it to allow for changes in the cost of living andit should be paid to rich and poor alike. I prefer the child benefit system and I shall support that. Therefore, much as I strongly support the motives of those who have tabled the new clause, I shall abstain.

Mr. Chris Smith: I have considerable sympathy with the argument put by the hon. Member for High Peak (Mr. Hawkins). I also have great sympathy with the aims of my hon. Friend the Member for Birkenhead (Mr. Field) in putting forward the new clause. The principal purpose that he is seeking to achieve is to highlight in graphic form the difficulties facing families in Britain in bringing up children and meeting the costs that are involved in that.
The Labour party has always supported the existence and the proper uprating of child benefit since its introduction. We believe fundamentally that that is the proper and sensible way forward in order to ensure that families have the means to bring up children in our society. That is our view and we shall continue to press the Government to change their mind on the foolish decision that they have taken for each of the past two years not to uprate child benefit.
The proposers of the new clause have identified that as a problem. They have identified the difficulties that many


families with children now face because of the Government's decision not to uprate child benefit. They have concluded that, because the Government have blocked such uprating, the way forward is no longer to batter at the doors saying that child benefit must be uprated, but to say, "Let us find another way around the problem; let us try the old idea of a tax allowance again."
I am afraid that that is the point at which my hon. Friends and I must part company. I do not think that all is lost, or that we should give up the fight for child benefit here and now. I say that for two reasons. First, there are many problems relating to a tax allowance as opposed to benefit. A tax allowance is available only to those within the tax system; it is not available to those who fall below the tax threshold. Secondly, tax allowances on the whole go to the father rather than the mother, while child benefit is paid automatically to the mother.

Sir Ian Gilmour: I think that the hon. Gentleman has slightly misunderstood the purpose of the new clause. It is not to do away with child benefit; in the present circumstances, it would provide an addition to child benefit. Surely the hon. Gentleman's arguments are entirely inapplicable.

Mr. Smith: I fear that I must disagree with the right hon. Gentleman. He is, of course, correct in saying that those who tabled the new clause seek to enshrine an additional allowance in the legislation, but the same problems will apply to that additional amount as apply to the principle of a tax allowance as opposed to an increase in child benefit.

Mr. Frank Field: I accept that between 200,000 and 300,000 parents in work would not be able to claim a tax allowance, should it be introduced, but nearly 20 million others would be able to. Is my hon. Friend saying that because 200,000 cannot claim 20 million should not?

Mr. Smith: My hon. Friend mistakes my argument. I am not saying that that is a reason for rejecting the new clause out of hand; I am saying that it is a problem with the system of tax allowance that my hon. Friend wants to introduce. He himself identified a problem relating specifically to the new clause, that it would not necessarily apply to children under education age. That, of course, alters to an extent the figures that he has just given.
The other difficulty about opting for tax allowance is that tax relief is available to top-rate taxpayers at the top rate, and therefore provides more assistance for higher earners than to lower earners. My hon. Friend talked about ensuring equity both vertically and horizontally, and the horizontal argument—differentiating between families with children and those without—holds up to a certain extent. But in that context the top-rate taxpayers will pose a major disadvantage. As for the vertical argument, my hon. Friend does not have a good case. Those who fall outside the tax system will be unable to benefit from the tax relief that he proposes.
The problems involved in the mechanism of tax relief, as opposed to an increase in child benefit, are not the only reason for my opposition to my hon. Friend's proposal, however much I applaud his aims.
We shall continue to make strenuous efforts to persuade the Government that a proper uprating of child benefit is the only sensible way to improve the lot of

families who are bringing up children. It is clearly the best mechanism for doing so. Many Conservative Members have made that point in the debate.
We hope that the Government will see sense and that therefore there will be no need to entertain the somewhat flawed proposals relating to child tax allowances that are provided for in the new clause. My hon. Friend's motives are entirely understandable, but I hope that he will join us in continuing to batter at the Government's door and in continuing to ask them to uprate child benefit properly, as they ought to have done in each of the last two years and as they ought to do this year and next year as well.

12 midnight

Mr. Norman Lamont: The new clause seeks to reintroduce child tax allowance alongside child benefit. The hon. Member for Birkenhead (Mr. Field) and my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) have a long-standing interest in the subject.
I was a little surprised by what the hon. Member for Birkenhead said. During the late 1970s he strongly supported the conversion of child tax allowances into child benefit. Recently, as he acknowledged, he has published a number of articles and made a number of speeches in which he has advocated the abolition of all tax allowances. I am not entirely sure how he reconciles that proposal with his desire to help those on low incomes. However, I realise that what he is doing tonight, as he revealed the other day in The Guardian, is essentially a political, or tactical or teasing exercise. I am grateful to my hon. Friend the Member for Ealing, Acton (Sir G. Young) for saying that the new clause is only a gentle reminder.
Under the new clause, the hon. Member for Birkenhead proposes to reintroduce a tax allowance which was abolished in April 1979. As I think that he acknowledged, the new clause does not make a great deal of sense. Far from simplifying and rationalising the tax and social security system, it would introduce new complications. It would be difficult to justify the cost of setting up and maintaining two separate administrative systems to give general support by different means. It has also been acknowledged during the debate that the new clause would fail to meet the aim of helping those who need it most. A child tax allowance would be of no help to the 25 per cent. of families who do not pay tax. The hon. Member for Birkenhead has suggested elsewhere that families should be able to choose whether they wish to receive a cash payment instead of a tax allowance. That, too, would make the system even more complicated.
At the practical level, the new clause does not suggest how the proposed tax allowance would be divided when both parents can claim relief. As I am sure he realises, under independent taxation both the husband and the wife could each claim the new allowance. The new clause, however, does not make it clear whether the mother or the father ought to have the relief. That is perhaps a point of detail.
Most of the hon. Gentleman's remarks, and those of my right hon. Friend the Member for Chesham and Amersham, were directed not at the new clause but at the fact that the Government have not uprated child benefit. That decision has been explained on many occasions by my right hon. Friend the Secretary of State for Social Security. Child benefit has not been increased this year,


but the Government are targeting additional help on those families who need it most. Families in receipt of income support or family credit do not gain from an increase in child benefit; it is offset in their income-related benefit.

Sir Ian Gilmour: It is not true that my right hon. Friend the Secretary of State for Social Security explained why child benefit was not uprated. He did not. He produced the most specious speech that I have ever heard in the House. With great respect to my right hon. Friend, he is off the point. As my hon. Friend the Member for Ealing, Acton (Sir G. Young) said, we are dealing not with people in great poverty, but with the horizontal point—surely even the Treasury will agree with it—that people with families have more responsibilities and expenditure than people without. Will my right hon. Friend be good enough to deal with that point?

Mr. Lamont: My right hon. Friend first did my right hon. Friend the Secretary of State for Social Security a grave injustice and then spoke about horizontal equity. Governments have to choose in a world of limited resources. The Government were right to decide to deploy resources more to help families in greatest need.

Mr. Chris Smith: Will the Minister give way?

Mr. Lamont: In a minute. I want to answer my right hon. Friend.
This year we have added £205 million to expenditure on income-related benefits, £70 million of which offsets the effect of the child benefit decision, with a further £70 million increase in the real value of those benefits.
We recognise the issue of horizontal equity and that child benefit is a useful contribution towards the upkeep of children, but it does not follow that it should be uprated each year and indexed all the time. Tax allowances in 1981 were not indexed. Sometimes tax allowances have been increased by more than inflation, sometimes in line with inflation and sometimes not even with inflation.
Obviously, benefit decisions must be taken in the light of overall public expenditure. With benefits, unlike with tax allowances, we have the opportunity to redeploy some resources to help the poorest families. Although horizontal equity is important and people have obligations towards their children, it was absolutely right to direct some resources towards helping the poorest families. Increases in child benefit would not have been as effective, or indeed helped poorest families as much, as the increases in family credit.

Mr. Chris Smith: The Financial Secretary is right only in so far as he says that the Government must choose where to place their fiscal and financial priorities. The Government have made those choices clear. In last year's Budget they decided to forgo well over £2 billion worth of income in tax cuts for top rate taxpayers. For a fraction of that money they could have increased child benefit in line with inflation both last year and this year. The Financial Secretary, as a Treasury Minister, must have had some hand in discussing those choices with the Secretary of State for Social Security. How does he justify them?

Mr. Lamont: The other point is that the Government's tax policies and overall economic policies have resulted in a considerable increase in the living standards of earners

with and without children. [HoN. MEMBERS: "Answer the question."] I am answering the point, but I want to refer to what the hon. Member for Birkenhead said, which was reflected in what my right hon. Friend the Member for Chesham and Amersham said. Both asserted that changes to the tax-benefit system have favoured those without children.
It is, of course, perfectly true that reductions in the basic rate of income tax have benefited single people more than married couples with children. The reason is that single people pay a higher proportion of their income in tax to start with. However, the tax cuts have benefited everyone, including families with children, and since the Government came to office real take-home pay has increased substantially for those with and without children at all income levels. That is true at half average earnings, where real take-home pay for a married man with two children is up by over 24 per cent.
Although it may be true that take-home pay after tax cuts has increased somewhat more for those without children, when one takes account of what has been achieved by the increases in family credit, it is not true at the bottom end of the scale. I draw the attention of my right hon. Friend for Chesham and Amersham and of the hon. Member for Islington, South and Finsbury (Mr. Smith) to the recent study by the Institute of Fiscal Studies into the impact of taxes and benefits since 1979. It said:
On incomes below about £200 a week, those with children do significantly better than those without as a direct result of the much increased generosity of family credit.
I put it to the House that the problem of people with children at the lower end of the scale has been taken care of through our redeploying resources to family credit.
My right hon. Friend the Member for Chesham and Amersham is over-interested in what he calls horizontal equity. The people whom he says have lost out have benefited enormously from the general prosperity, the general growth in the economy and the tax cuts, all of which have brought about a considerable increase in the living standards of families with children. If we had not pursued our policies, many of those families would have been much nearer the poverty level and many of them have been floated further away from poverty as a result of the policies we have pursued.

Sir Ian Gilmour: I welcome, of course, the fact that something has been done for the least well off and it is gratifying that £70 million of the £200 million saved on child benefit went to the least well off. It would have been even more gratifying if the whole £200 million had gone to the least well off, but it did not. I must ask my right hon. Friend to return to the question of horizontal equity. It is true that everyone is better off, unless something has gone seriously wrong with the economy. All our children grow every year. However, families with children are relatively less well off than families without children or even than single persons. Will my right hon. Friend be kind and4deal with that point?

Mr. Lamont: I have attempted to deal with it. I have made the point that I attach far more importance to the relief of poverty at the bottom end of the scale than I do to the principle of horizontal equity. I still make the point that child benefit has been a useful contribution to the upkeep of children. My right hon. Friend is saying that people miles above the poverty line—middle income families—have somehow been made far worse off just as a


result of the decision made in the past few years on child benefit. That is not a serious factor or a serious matter in household economics. It is not a serious factor compared with the general increase in prosperity that those families have enjoyed in recent years.
I am less concerned about horizontal equity and more concerned about doing something for people at the bottom end of the scale than my right hon. Friend the Member for Chesham and Amersham appears to be. It is curious to propose new clause 23, which would be so regressive in its impact. What would be the impact of a £100 tax allowance? It would mean £40 a year to the higher rate taxpayer, £25 a year to the basic rate taxpayer, £7·50 a year to a taxpayer on family credit and nothing for anyone earning less than the existing allowances. That seems a difficult approach to justify. We have got our priorities right by directing the help towards those in the greatest need.

Mr. Rooker: The Financial Secretary said that child benefit was useful. He has also recited the years in which tax allowances had risen by more than inflation, level with inflation and by less than inflation. If my memory serves me correctly—I ask the Financial Secretary to confirm this—in only one year since 1977 have tax allowances risen by less than the rate of inflation. That was 1981, the year when allowances did not rise at all and when the Government came to the House for agreement to freeze tax allowances. Yet child benefit has been frozen at least twice and it has twice been raised by less than the rate of inflation. Only once in 12 years have tax allowances not risen in line with inflation, yet child benefit has failed to increase with inflation in four of those 12 years. Where is the equity for the family in that?

Mr. Lamont: I in no way sought to mislead the House or the hon. Member for Birmingham, Perry Barr (Mr. Rooker). I said that allowances were not increased in 1981; it was the only year in which allowances were not indexed. The Government have that choice, and they exercised it on that one occasion. As the hon. Member for Perry Barr said, child benefit has not been indexed on more occasions. But in those years we have directed more help through family credit, as I have repeatedly emphasised. I believe that the redeployment of resources to the direct relief of poverty is more valuable than, and should come before, the principle of horizontal equity on which my right hon. Friend the Member for Chesham and Amersham has based his case. My right hon. Friend attaches enormous importance to that principle.
I believe that there should be a recognition of children in the system, but I do not believe that my right hon. Friend is right in saying that those whose incomes take them well above the family credit network—those on average earnings and above—have really had a significant degree of hardship inflicted on them by our decision. They have benefited from increased earnings and the tax cuts of recent years. For that reason, I believe that the priorities on which my right hon. Friend the Secretary of State for Social Security has decided are emphatically the right priorities.

Question put, That the clause be read a Second time:—

The House divided: Ayes 23, Noes 194.

Division No. 294]
[12.16 am


AYES


Alton, David
McAvoy, Thomas


Ashdown, Rt Hon Paddy
Marshall, Jim (Leicester S)


Ashton, Joe
Michie, Mrs Ray (Arg'l &amp; Bute)


Barnes, Harry (Derbyshire NE)
Morrison, Sir Charles


Beith, A. J.
Parry, Robert


Campbell, Menzies (Fife NE)
Skinner, Dennis


Clay, Bob
Steel, Rt Hon David


Ewing, Mrs Margaret (Moray)
Wallace, James


Field, Frank (Birkenhead)
Winterton, Nicholas


Gilmour, Rt Hon Sir Ian



Hughes, Simon (Southwark)
Tellers for the Ayes:


Kennedy, Charles
Sir George Young and


Kirkwood, Archy
Mr. Jeff Rooker.


Lester, Jim (Broxtowe)



NOES


Alexander, Richard
Forman, Nigel


Alison, Rt Hon Michael
Forsyth, Michael (Stirling)


Amess, David
Forth, Eric


Amos, Alan
Fox, Sir Marcus


Arbuthnot, James
Franks, Cecil


Arnold, Jacques (Gravesham)
Freeman, Roger


Ashby, David
French, Douglas


Atkinson, David
Gale, Roger


Baker, Nicholas (Dorset N)
Garel-Jones, Tristan


Baldry, Tony
Gill, Christopher


Batiste, Spencer
Gorman, Mrs Teresa


Bellingham, Henry
Gow, Ian


Bevan, David Gilroy
Greenway, John (Ryedale)


Biffen, Rt Hon John
Gregory, Conal


Boscawen, Hon Robert
Griffiths, Sir Eldon (Bury St E')


Boswell, Tim
Griffiths, Peter (Portsmouth N)


Bottomley, Peter
Ground, Patrick


Bottomley, Mrs Virginia
Gummer, Rt Hon John Selwyn


Bowden, Gerald (Dulwich)
Hague, William


Bowis, John
Hamilton, Hon Archie (Epsom)


Brandon-Bravo, Martin
Hamilton, Neil (Tatton)


Brazier, Julian
Hampson, Dr Keith


Bright, Graham
Hannam, John


Brown, Michael (Brigg &amp; Cl't's)
Hargreaves, A. (B'ham H'll Gr')


Browne, John (Winchester)
Hargreaves, Ken (Hyndburn)


Burns, Simon
Harris, David


Burt, Alistair
Hayes, Jerry


Butcher, John
Hayward, Robert


Butler, Chris
Heathcoat-Amory, David


Butterfill, John
Hind, Kenneth


Carlisle, John, (Luton N)
Hogg, Hon Douglas (Gr'th'm)


Carlisle, Kenneth (Lincoln)
Howarth, G. (Cannock &amp; B'wd)


Carrington, Matthew
Hughes, Robert G. (Harrow W)


Carttiss, Michael
Hunt, David (Wirral W)


Cash, William
Hunt, Sir John (Ravensbourne)


Chalker, Rt Hon Mrs Lynda
Irvine, Michael


Chapman, Sydney
Jack, Michael


Chope, Christopher
Jackson, Robert


Clark, Hon Alan (Plym'th S'n)
Janman, Tim


Clark, Dr Michael (Rochford)
Jessel, Toby


Colvin, Michael
Johnson Smith, Sir Geoffrey


Coombs, Anthony (Wyre F'rest)
Jones, Gwilym (Cardiff N)


Coombs, Simon (Swindon)
Jones, Robert B (Herts W)


Cope, Rt Hon John
Key, Robert


Couchman, James
King, Roger (B'ham N'thfield)


Cran, James
Knapman, Roger


Currie, Mrs Edwina
Knight, Greg (Derby North)


Curry, David
Knight, Dame Jill (Edgbaston)


Davies, Q. (Stamf'd &amp; Spald'g)
Knowles, Michael


Davis, David (Boothferry)
Lamont, Rt Hon Norman


Day, Stephen
Lang, Ian


Dorrell, Stephen
Latham, Michael


Douglas-Hamilton, Lord James
Lawrence, Ivan


Dover, Den
Lee, John (Pendle)


Dunn, Bob
Leigh, Edward (Gainsbor'gh)


Durant, Tony
Lightbown, David


Eggar, Tim
Lilley, Peter


Fallon, Michael
Lloyd, Peter (Fareham)


Favell, Tony
Lord, Michael


Field, Barry (Isle of Wight)
Luce, Rt Hon Richard


Fishburn, John Dudley
Macfarlane, Sir Neil






MacKay, Andrew (E Berkshire)
Shephard, Mrs G. (Norfolk SW)


Maclean, David
Shepherd, Colin (Hereford)


McLoughlin, Patrick
Smith, Tim (Beaconsfield)


Mans, Keith
Spicer, Michael (S Worcs)


Marshall, John (Hendon S)
Stanley, Rt Hon Sir John


Martin, David (Portsmouth S)
Stern, Michael


Maude, Hon Francis
Stevens, Lewis


Maxwell-Hyslop, Robin
Stewart, Andy (Sherwood)


Mayhew, Rt Hon Sir Patrick
Sumberg, David


Miller, Sir Hal
Taylor, Ian (Esher)


Mills, Iain
Taylor, John M (Solihull)


Mitchell, Andrew (Gedling)
Taylor, Teddy (S'end E)


Mitchell, Sir David
Thompson, D. (Calder Valley)


Monro, Sir Hector
Thompson, Patrick (Norwich N)


Moore, Rt Hon John
Tracey, Richard


Morris, M (N'hampton S)
Trippier, David


Moss, Malcolm
Trotter, Neville


Moynihan, Hon Colin
Twinn, Dr Ian


Neubert, Michael
Waddington, Rt Hon David


Nicholls, Patrick
Walden, George


Nicholson, David (Taunton)
Walker, Bill (T'side North)


Nicholson, Emma (Devon West)
Waller, Gary


Norris, Steve
Ward, John


Onslow, Rt Hon Cranley
Wardle, Charles (Bexhill)


Oppenheim, Phillip
Warren, Kenneth


Page, Richard
Watts, John


Paice, James
Wells, Bowen


Patnick, Irvine
Whitney, Ray


Patten, John (Oxford W)
Widdecombe, Ann


Pattie, Rt Hon Sir Geoffrey
Wilkinson, John


Peacock, Mrs Elizabeth
Wilshire, David


Porter, David (Waveney)
Winterton, Mrs Ann


Raffan, Keith
Wood, Timothy


Redwood, John
Yeo, Tim


Rifkind, Rt Hon Malcolm



Roberts, Wyn (Conwy)
Tellers for the Noes:


Shaw, Sir Giles (Pudsey)
Mr. Alan Howarth and


Shelton, Sir William
Mr. Tom Sackville.

Question accordingly negatived.

Further consideration adjourned.—[Mr. Maclean.]

Bill, not amended in the Committee, (and as amended in the Standing Committee), to be further considered this day.

Rate Support Grant (Scotland)

The Parliamentary Under-Secretary of State for Scotland (Lord James Douglas-Hamilton): I beg to move,
That the Rate Support Grant (Scotland) Order 1989, dated 24th May 1989, a copy of which was laid before this House on 25th May, be approved.
I appear before the House for the first time with my new responsibility for local government finance in Scotland. It is an opportunity to present good news. The purpose of this order is to adjust grant entitlements for Scottish local authorities for previous years, in the light of more up-to-date information on expenditure during those years. The main point of note is that, in the year just ended, 1988–89, authorities reduced their expenditure, as against their original budget figures, by £48 million, as a result of which, if the House approves this order, we will return to them about £70 million in rate support grant. There are also minor adjustments of grant for 1987–88 and for 1986–87. The Convention of Scottish Local Authorities has of course been fully consulted about the contents of the order, and welcomes it.
Authorities' budgets for 1988–89 were £3,742 million—£136·5 million above guidelines. As a result, the House approved a year ago the Rate Support Grant (Scotland) Order 1988, under which the grant apportionments were reduced of those authorities budgeting above guideline. Of the total excess over guideline of £136·5 million, £116 million, or 85 per cent., was accounted for by Strathclyde and Lothian regions alone. The tariff of grant penalties imposed last July was, when compared with the huge budgeted overspending and also when compared with tariffs in some earlier years, moderate. It imposed modest penalties on authorities which were budgeting slightly over guideline, and which might most easily be persuaded to reduce their spending during the year. The penalty tariff increased substantially for authorities budgeting at 4 per cent. or more over guideline, because it was on those authorities that the greatest pressure needed to be exercised.
The judiciousness of this penalty tariff is well demonstrated by local authorities' response, as evidenced in their provisional outturn figures for this year. Overall spending has been reduced by £48 million by comparison with the original budget figures, and, among authorities that have reduced their expenditure most significantly, Strathclyde has secured reductions of £17 million and Lothian of £20 million. Those two authorities are therefore the major beneficiaries of this evening's order, under which, and subject to the House's approval, they will have returned to them £48·1 million and £23·8 million respectively. Other notable beneficiaries of tonight's order are Fife region and Edinburgh and Glasgow districts. Some authorities—notably Central region and Stirling and Cunninghame districts—have regrettably increased their spending at outturn, and so their penalties are increased.
By comparison, the grant adjustments in respect of 1987–88 and 1986–87 are minor indeed, and reflect simply minor adjustments to those authorities' accounts in the light of the most up-to-date information on their spending in the relevant financial years.
I should now like to turn briefly to details of the order. It makes adjustments to grant penalties for the last three years of rate support grant, using the penalty tariffs previously applied to each of those years.
First, the order increases rate support grant for 1988–89 to take account of reductions in spending at provisional outturn stage. As a result, rate support grant will increase from £1,897·8 million to £1,967·5 million. Strathclyde region has reduced its spending excess over guideline from 5·1 per cent. at the time of the 1988 order to 3·97 per cent. and will recover £48·1 million in grant. Similarly, Lothian has reduced its excess from 9·71 per cent. to 4·85 per cent. It will recover grant of £23·8 million. Details of the original 1988–89 penalties and of how they are now being revised are given in appendix 2 of the report, the revised penalties being shown in column 6 of the table to appendix 2 to the report with adjustments to grant payments set out in column 9.
For 1987–88, final or near final outturns show a small decrease in spending. The effect of this is to reduce penalties by £0·2 million. Details of the adjustments to penalties are shown in column 6 of table II of appendix 3 to the report.
For 1986–87, final or near final outturns show a small increase in spending, which has the effect of increasing grant penalties by £0·03 million. Details of the adjustments to penalties are shown in column 8 of table II of appendix 4 to the report. There will be a continuing need to adjust grant for each of those years in the light of up-to-date information.
As for next year—1990–91—representatives of COSLA met my right hon. and learned Friend the Secretary of State last Monday, 3 July, and discussed the prospects for spending next year. They said that they expected their spending to go up by at least 7 per cent. —although this was on the basis of simply accepting this year's budget levels and adding their estimate of inflation. I would hope they can do better than that by looking at scope for economies and for greater efficiency and value for money. COSLA recognised that there might be something in this and it is encouraging—though in all the circumstances no more than mildly encouraging—that COSLA now proposes to open discussions with the accounts commission about the commission's future programme of value-for-money studies. I very much hope that that dialogue will he productive.
In the meantime, my right hon. and learned Friend will be reflecting on the discussions with COSLA last Monday and will take them into account when reaching conclusions on a revenue support grant settlement for 1990–91. It is hoped to make a statement on this before the House rises.
It is tempting to say more and to range wider on the subject of local government spending in Scotland, but I shall resist that temptation until I have had the chance to meet representatives of local authorities. For our immediate purposes, the order is good news for local authorities, it has been strongly welcomed by COSLA, and I commend it to the House.

Mr. John Maxton: I welcome the Minister to his new role as poll tax spokesman, although I must tell him that Edinburgh Members of Parliament with small majorities do not do too well as poll tax spokesmen. The last one lost his seat, and the Minister

may have the same problem at the next election. His new responsibilities are due to a shift in the power structure of the Scottish Tory party. I am delighted to see the new deputy leader of the Tory party in Scotland in his place, even though the new leader is not in his.
We welcome any money that the Government give local authorities, although the Minister's argument that this is some act of generosity on his part is laughable. This is money that local authorities should have had in the first place. It should never have been lost under a penalty scheme that should never have existed.
We welcome the end of the grant penalties. The system ended in Scotland only on 31 March this year, when it also ended in England and Wales. So poll tax levels in Scotland have been affected by the clawback, but England and Wales will enjoy a whole year without penalties, which means that the poll tax there next year will not be affected as it was in Scotland.
This order does not return all the money due to the local authorities. It represents only the partial return of clawback money, and a small number of authorities have lost out.
We welcome this money, however meagre it is and however late in the coming. Our local authorities need it to spend on the services that they provide.
This rather late and short debate may be an historic moment for the House. This may be the last rate support grant order for Scotland. When we return to power and introduce a new local taxation system, we shall not call it the rate support grant system.

Sir Hector Monro: I welcome the order, which will greatly help local authorities. Will my hon. Friend answer two questions, or write to me with the information if that proves inconvenient?
Why have only four out of all the authorities received penalties? Why has not Annandale and Eskdale been penalised? It has clearly been overspending, and it would be interesting to know why, and by how much. Has my hon. Friend the Minister brought it home to that authority that that is no way to proceed with prudent housekeeping? [Interruption.] It has been the result of a Democrat majority in Annandale and Eskdale.
Secondly, will my hon. Friend either respond tonight or write to me about the arrangements for the UBR, which are so important in Scotland and which my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Lang) mentioned recently? They appear to be more satisfactory than any self-employed person or small business man could have anticipated, which is good news.

Lord James Douglas-Hamilton: The Annandale and Eskdale district's overspend against guidelines in 1987–88 increased on the basis of further adjustments to the accounts for that year. Those figures will have been produced by the council's auditors. It is a great pity that the authority, which is normally noted for its prudence, should find itself in that position.
Local authorities knew when budgeting last year that there would be penalties. They were also given early warning of the exact penalty tariff on 19 May 1988 and a similar procedure was adopted for earlier years. Therefore, they had plenty of opportunity during the year to reduce


their planned expenditure and thereby to avoid penalties. However, I hasten to confirm that, as the hon. Member for Glasgow, Cathcart (Mr. Maxton) said, the penalty system is coming to an end. The hon. Gentleman referred to the closing down of the English system this year. That was undertaken for reasons that did not apply in Scotland. There are many differences between the Scottish and English systems. After the close down, English authorities were unable to recover grant already lost last year or in previous years. Our arrangements in Scotland are well understood and local authorities were well able to respond.
The essence of the order is to return £70 million to local authorities. The funds are being returned to local authorities that budgeted to overspend last year, but were then able during the year to reduce their spending. The order will assist local authorities' cash flows now and assist them in keeping budgets. Secondly, it will keep down the base level of their spending for all future years.
The order has been welcomed by COSLA and I detect, despite the slightly grudging remarks of the hon. Member for Cathcart, that, none the less, on the whole the Opposition welcome the order, although it is difficult for him to say so. We have now embarked on a new grant system, and grant penalties are something of the past, except to the extent that we are repaying them in part. It is the accountability of the community charge that allows us to end grant penalties, and for that reason alone the Opposition should join us in welcoming the new community charge. I commend the order to the House.

Question put and agreed to.

Resolved,
That the Rate Support Grant (Scotland) Order 1989, dated 24th May 1989, a copy of which was laid before this House on 25 May, be approved.

Coal Industry

The Parliamentary Under-Secretary of State for Energy (Mr. Michael Spicer): I beg to move,
That the draft Redundant Mineworkers and Concessionary Coal (Payment Schemes) (Amendment) Order 1989, which was laid before this House on 15th June, be approved.
I have such good news to tell my hon. Friends that I must spell it out for a few moments.
I am sure that the order will be welcomed by both sides of the House, as it follows and confirms my announcement on 10 April that the Government would modify the redundant mineworkers' payments scheme so that receipt of benefits under the scheme would no longer be conditional upon the beneficiary making himself available for work.
As hon. Members will know, it has always been part of the scheme that beneficiaries must attend unemployment benefit offices, be available for work, and therefore be in receipt of national insurance credits, in order to receive benefits under the scheme. Over the past year or so, however, the restart programme has been testing more rigorously whether claimants are genuinely available for work. A number of RMPS beneficiaries have been failing adequately to show their availability. That has meant that they have lost entitlement to RMPS benefits.
Payment of RMPS benefits has always been conditional upon the ex-mineworker signing on for employment at the unemployment benefit office unless he was certified as incapable of work through sickess or injury. Nevertheless, there was a general perception that those who took up offers of weekly benefits associated with voluntary redundancy under the successive schemes were in effect taking early retirement from the coal industry.
Consequently, concern was expressed by hon. Members in all parts of the House, and especially by my hon. Friends the Members for Sherwood (Mr. Stewart), for Elmet (Mr. Batiste), for Gedling (Mr. Mitchell), for Cannock and Burntwood (Mr. Howarth), for Broxtowe (Mr. Lester), for Nottingham, East (Mr. Knowles), for Newark (Mr. Alexander), and for Derbyshire, West (Mr. McLoughlin).

Mr. Spencer Batiste: I am sure that my hon. Friend the Minister agrees that representations were made by right hon. and hon. Members in all parts of the House representing mining constituencies—but nowadays the majority of them are Conservative Members.

Mr. Spicer: My hon. Friend makes his point very well. Certainly concern was expressed by right hon. and hon. Members in all parts of the House that ex-miners who regarded themselves as retired after many years' service in the coal industry were being required to demonstrate their availability for work.
The effect of the draft order is to create a new option for RMPS beneficiaries. They may choose to continue, as at present, to sign on at unemployment benefit offices, to make themselves available for work, and to receive national insurance credits. Alternatively, beneficiaries may choose not to sign on, and consequently not to be asked about their availability for work.
In that case they will still receive RMPS benefits as before. They will also receive further benefits under the


scheme equivalent to contributory social security benefits to which they will no longer be entitled because national insurance credits will no longer be awarded to them. Those further benefits are equivalent to sickness benefit and invalidity benefit. Beneficiaries will also be eligible to receive sums sufficient to pay class 3 national insurance contributions to maintain entitlement to state retirement pension.
The key element of the amending order is the new article 9, paragraphs (1) to (3), which have two main effects as regards payments to RMPS beneficiaries entitled to weekly payments under the scheme.
A beneficiary who is not incapacitated will be paid a weekly sum which, together with any social security benefits to which he is entitled, will equal the total benefits to which he would have been entitled had he continued to sign on at the unemployment benefit office. That means that the beneficiary will receive a payment under the scheme equal in value to unemployment benefit when his entitlement to unemployment benefit is exhausted—and irrespective of whether he makes himself available for work.
On days of sickness, when the RMPS beneficiary is no longer eligible for sickness or invalidity benefits from the social security system, the scheme will pay a weekly sum which, taken together with any social security benefits to which he is entitled, will equal the total of all the benefits to which he would have been entitled had he been eligible for contributory social security benefits. That means that the beneficiary will receive a payment under the scheme equal in value before tax to either sickness benefit or invalidity benefit. All RMPS benefits are liable to tax in the case of those beneficiaries falling in the tax bracket.
The new article 18 provides for the Secretary of State to pay such number of an employee's voluntary class 3 national insurance contributions as will be sufficient to secure his entitlement to state retirement pension at the rate to which he would have been entitled had he continued to receive national insurance credits. In general, we expect payments of such contributions to be made as a single lump sum at age 59, taking into account the individual's past employment record and his being in receipt of automatic national insurance credits between the ages of 60 and 65.
Article 18A fulfils the other promise I made in my announcement of 10 April—that beneficiaries will be recompensed for lost RMPS benefits arising from changes in the availability-for-work procedures. That generous provision provides for full retrospective award of lost benefits arising from the effect of restart to 3 January 1988. That will fully compensate those who have been adversely affected.

Mr. John Home Robertson: I am sure that the House welcomes the Minister's announcement that the position of redundant mineworkers will be restored to that for which they understood they had bargained when accepting redundancy. The news that losses will be repaid is also most welcome. However, perhaps the Minister will address himself to the position of mineworkers who were harassed into accepting low-pay employment under the restart programme and who, because they accepted such employment, may have lost their entitlement to benefit from other aspects of the scheme. Can anything be done to assist such people?

Mr. Spicer: We do not accept that there has been any harassment—that is the wrong word to use. There is no way in which one could recompense somebody who has taken on another job. If people have not been able to take on a job, they will get compensation.

Mr. Geoffrey Lofthouse: All the mineworkers in my constituency are grateful to the Minister and the Departments for bringing about this satisfactory conclusion. The Minister will recall that a few months ago I presented to him two cases of 59-year-old men, one of whom was called Harry Cryer. As recently as last week, Harry Cryer received a letter from the Department of Employment demanding repayments and telling him that he would not get his benefit or credits. I hope that, after tonight, such action by the Department of Employment will cease.

Mr. Spicer: No harassment is involved. It is our intention that all repayments should be made by the end of August. I hope that that deals with the hon. Gentleman's two constituency cases.

Mr. Dennis Skinner: At the weekend, I had a telephone call from a member of the clerical staffs association who had a certain amount of superannuation. She asked me whether I would ask the Minister whether women working in offices who had been made redundant would be treated in the same way, notwithstanding the fact that they had some superannuation from their pension fund, and whether any difference would be made up.

Mr. Spicer: I shall check that matter and get in touch with the hon. Gentleman. I am not sure whether that case falls into this category.

Mr. Allen McKay: I thank the Departments of Employment and Trade and Industry for doing this great thing. Will the hon. Gentleman cast his mind back to a question that I put to him some time ago about people who have lost their national insurance credits? They are likely to lose their pension benefit when they are 65. Will there be back credits? Can we ensure that the pension is not lost or reduced?

Mr. Spicer: I can give the hon. Gentleman the assurance that the credits will be made up in the form of a lump sum at the age of 59 if there are credit deficiencies.

Mr. David Ashby: Can my hon. Friend explain the morality of the order? Can he explain why the mineworkers should be separate from trawlermen and other people who have lousy jobs? Has he considered why miners, as opposed to people in other employment, should be singled out in what one could call the lousy job factor?

Madam Deputy Speaker (Miss Betty Boothroyd): Order. I am sure that the Minister will not go down that road but will deal with the order.

Mr. Spicer: It is perfectly fair that my hon. Friend the Member for Leicestershire, North-West (Mr. Ashby) should ask for justification. There was, however, a perception when the arrangements were made—the arguments for them are perhaps not matters that are properly debatable tonight, as you have said, Madam Deputy Speaker—that people would not lose out and that the availability-for-work criteria would not be applied


with the rigour that is being applied under restart. One can argue about whether that perception was well founded. British Coal made it clear at the time that people had to be available for work, and the Government accepted the case for these arrangements.
It was perfectly proper for my hon. Friend the Member for Leicestershire, North-West to make the point that miners who have been made redundant have been given exceptionally generous terms, for which the taxpayer is paying. There is no question about that. We hope that there will be benefits for the industry. Productivity is rising, and the industry is becoming able to stand on its own feet against competition.
I am sure that hon. Members recognise that the RMPS is one of the most generous redundancy schemes that has ever been set up for a group of industrial employees—that makes the point of my hon. Friend the Member for Leicestershire, North-West. On joining the scheme, beneficiaries could receive weekly benefits of up to 90 per cent. of their pre-redundancy earnings and a lump sum payment. By this order, the Government have demonstrated their continuing concern for ex-mineworkers by allowing them, if they wish, no longer to make themselves available for work, and by paying them benefits equivalent to those they would have received from the social security system.
This is a further example of the Government's commitment to the coal mining industry. The Government require that the industry maintains its present pace of putting its house in order so that it can stand on its own feet and compete fairly against all corners. That is in its own hands and in prospect, contrary to what some Opposition Members sometimes say.

Mr. Kevin Barron: I am tempted to take the Minister up on his assertion of the Conservative Government's commitment to the coal industry. We will wait for the outcome of the negotiations between British Coal and the new generators before we decide what type of commitment the Government have to the coal industry. Everyone knows that the Government have control over all of the organisations that are involved in those negotiations.
At long last, an injustice in the British coalfields is being put right tonight. It is a great pity that we have had to wait some 19 months since the introduction of the Government's restart scheme for mineworkers who have retired on weekly redundancy payments to get what we could only call fair treatment. Much has been said about who is responsible for getting the Government to take this corrective action aimed at the anomalies that restart threw up, but the public record will show quite clearly that it was Labour Members who first raised the issue—in July 1988 —of the treatment of retired mineworkers.

Mr. Patrick McLoughlin: Can the hon. Gentleman tell us why the Labour party opposed any amendments to the restart scheme when it was considered by the House?

Mr. Barron: The public record will show where the argument about the treatment of retired mineworkers under the Government's restart scheme came from. It

came from my predecessor on the Opposition Front Bench—my hon. Friend the Member for Midlothian (Mr. Eadie)—and from me on the Back Benches. Conservative Members can read the list of hon. Members who are supposed to have got the amending order before the House tonight, but although many of them took part in the debate in July 1988, not one of them mentioned the problem that retired miners would have with the Government's restart scheme.
When the matter was first raised, the Minister said that the
matter comes under employment legislation and is not for my Department."—[Official Report. 14 July 1988; Vol. 137, c. 674.]
Tonight we find that he was wrong. It is, indeed, a matter for his Department. That is why he is at the Dispatch Box presenting this order to put the injustice right.
No immediate action was taken after that debate. Letters and discussions were followed by delegations to the Department of Energy and the Department of Employment led by me and many of my hon. Friends. By March 1989 the Department of Energy was still unable to settle the issues that we are debating. Yet at that time an order dealing with restructuring grants in the coal industry was brought before the House. One would have thought that after 14 months of restart and months after the issue had first been raised, this order could have been brought forward then in order to end the injustice done to many people who took redundancy under the scheme.
It was only on 14 March this year, in a written answer to my hon. Friend the Member for Nottingham, North (Mr. Allen), that the Secretary of State said that he would introduce an amending order, and that is what we are debating.
The Opposition thank the Government for the order. The Minister may be aware that about 60,000 recipients will be covered by it. Many of them are under 60 years of age and are therefore eligible for restart interviews or could meet the availability-for-work test under that scheme.
In effect, the original orders make such people retire. Many British Coal officials who offered redundancy terms said that the men would retire when they finished at their colliery, only to find out that that was not true. I am pleased to say that when this amending order is passed tonight they will be officially retired.
The Minister may be interested to know that the major trade union in the British coal industry, of which I am proud to have been a member for many years now and of which I am a sponsored Member in the House, currently allows men to retire at 55 years of age. We should be congratulating the Government on beating that target by up to five years.
The order deserves the support of the House because it puts right an injustice. It ensures that an amount equivalent to unemployment benefit due or class 3 national insurance contributions are paid by the Department of Energy and so removes the anomaly that existed between that Department and the Department of Employment. It will compensate those who have lost many hundreds, if not thousands, of pounds as a result of the way in which the restart interviews were applied to people in receipt of a weekly payment and a coal allowance from British Coal.

Mr. Andy Stewart: As the hon. Gentleman knows, Sherwood is the largest mining constituency and so has more miners who have retired under the RMPS than


any other in Britain. Why is it that not one miner in my constituency has lost a pound of his entitlement? Why does that happen only in Labour constituencies?

Mr. Barron: The hon. Gentleman may have answered another question. If nobody in his constituency lost any money under the restart scheme, that may be why it was not until February this year that the hon. Gentleman appears in any records of the House as wanting to do anything about the problems of retired miners under the restart scheme.
When I raised the differences between constituencies in July 1988, nearly 12 months ago, the Department of Employment was not operating the restart interviews in the way that it did later in my constituency. The scheme was introduced gradually throughout Britain, and its effect was felt first in areas such as Leicestershire and south Wales.

Mr. Skinner: I think that there is a more sinister interpretation of what the hon. Member for Sherwood (Mr. Stewart) has had to say. I am of the opinion that some of the bureaucrats in the DSS and unemployment benefit offices have been instructed to go for the Labour constituencies. The hon. Gentleman let the cat out of the bag.

Mr. Barron: Perhaps the Minister would like to answer that point when he replies. I would not care to make such a suggestion; it seems to me to credit the Conservative party with far too much forethought and political wisdom, although I may be wrong.
Opposition Members welcome the order, although we wish that it had come sooner: we have been at the forefront of the argument that this injustice should be put right. We hope that, if anomalies recur in Government legislation that seem to be aimed at frightening people away from becoming unemployment statistics—and, on occasion, aimed at massaging the statistics—people who have spent a lifetime working in coal mines expecting retirement rather than redundancy will not be treated so callously.

Mrs. Edwina Currie: As it is late, I shall be brief.
I have three thank-you's to offer my hon. Friend the Minister. As hon. Members will remember, I mentioned in my maiden speech that I represented thousands of coal miners, as I did at the time. Now the pits have closed, or are about to, and relatively few miners are left. The fact that that transition has taken place with relatively little pain or disruption to the constituency is due entirely to the redundant mineworkers payment scheme.[Interruption.]

Madam Deputy Speaker (Miss Betty Boothroyd): Order. Let us have one debate at a time.

Mrs. Currie: My first thank-you is to my hon. Friend the Minister and his predecessors for implementing the scheme and making it as generous as it has been during the 1980s. My second is for the changes contained in the order. I am sure that my hon. Friend realises that miners were indeed encouraged to see themselves as retired rather than redundant, whatever may have been written in the paperwork at the time. They felt that they had completed their service down the pits with honour and dignity, and that the reduction in numbers had been made in the national interest.[Interruption.] We have a saying in my

part of the world, and the hon. Member for Bolsover (Mr. Skinner) is proving the truth of it: "Derbyshire born and Derbyshire bred—strong in the arm and thick in the head". I have been waiting for six years for the opportunity to say that to the hon. Gentleman.
When interviewed by restart and told that their benefits were to be withdrawn, my constituents were very upset. They came to see me in my advice bureaux, just as others went to many of my colleagues. They explained why they felt so upset. This may answer the point made by my hon. Friend the Member for Leicestershire, North-West (Mr. Ashby), who is my neighbour. They felt that they had already done their bit by giving up their jobs and what they saw as their status in life—because that goes with the job—and also by giving up the prospect of a future career in the industry. They believed that they had become retired people, so it was difficult for them when they were told that they were not retired and that they would have to return to the job market on a compulsory and not a voluntary basis.
The most effective pressure of all came from the Union of Democratic Mineworkers. That is true of many of my constituents. I put it to the hon. Member for Rother Valley (Mr. Barron) that when men have stayed at work despite the most horrendous provocation, as my constituents did thoughout the 12 months' strike, they deserve extra recognition and consideration, and they got it from the Minister.

Mr. Barron: Can the hon. Lady tell us when the UDM sat down with the Government to discuss redundant miners and the restart scheme? Did the union do that when closure of the south Derbyshire coalfield was being discussed?

Mrs. Currie: If it is in order, Madam Deputy Speaker, I shall refer in a few moments to some of the closures. It is typical of the Labour party, both in my constituency and elsewhere, that all it can do is to pick and poke at what happened in the past. Most of my hon. Friends, and my constituents, are much more interested in the future.
Thirdly, I thank my Government colleagues for bringing the scheme to an end. The last entrants were in March 1987. That was entirely right and proper. The reconstruction of the coal industry has almost drawn to a close. Coal is now extracted by fewer than half the previous number of miners. Future miners who are made redundant who go on to schemes of this kind will have to bargain for their money with the employer. That is absolutely right. It is far better that the employer should get costs down so that he can chase big customers and serve them properly.
I look forward to the day when British Coal (Enterprises) starts to be a taxpayer and to contribute instead of taking taxpayers' money. I am convinced that that can happen. We should work towards the eventual disappearance of schemes such as this. We should not be subsidising the industry with money provided by private businesses, often in the same constituency, which may find it hard to compete.
As a result of the redundant mineworkers payment scheme, huge changes have taken place in the industry and also in my constituency. This is the first time in nearly four years that I have been able to speak about the reconstruction of industry in my constituency. My constituents have no regrets whatever about leaving the


coal industry. They were given a choice. They could choose either to leave the industry under the RMPS—which meant that they had some security and some financial certainty for the rest of their lives—or to stay in the industry.
On 24 June I visited the mine workshops in Swadlincote— the main workshops centre in the midlands. They are flourishing and looking forward to the day when they will be privatised and can serve customers way beyond British Coal, and I look forward to the day when I can have shares in the business.
Most of the men took the opportunity that was offered by the scheme to say goodbye to the industry, and they did so without a backward glance. All Conservative Members with mining constituencies worried very much about the effect on employment, but we need not have done so. Those miners turned their backs on a dirty and dangerous industry, which still takes a terrible toll on men's health—we know that from our advice bureaux when people ask us if we can help them to get compensation for appalling lung diseases which are the legacy of deep coal mining—and our fears were unfounded.
Unemployment in my constituency started to come down before the pits closed, and it has been coming down steadily ever since. As a result, we are now in a totally different ball game. We need the skills of the men who have left the industry and many of them are returning to the job market. That is most welcome. The only other change that I hope to see, and which I hope that the Minister will encourage, is British Coal getting rid of and selling the many derelict acres of land that it owns in my constituency and elsewhere so that we can get on with further reconstruction. If the transition is successful and we reach the point where we say that British Coal should get rid of the land and make it available to other industries which will offer employment to the sons and daughters of my ex-miners, it will be mainly because of the Government's generosity in this scheme and others. I should like to express my gratitude to my hon. Friend for that.

Mr. Alexander Eadie: I do not give such a qualified welcome to the order as the hon. Member for Derbyshire, South (Mrs. Currie). I extend to the Minister my full appreciation for the order.
I do not give a damn whether the miners concerned are members of the Union of Democratic Mineworkers or of the National Union of Mineworkers. They all suffered from the restart legislation. I do not want to become involved in a brawl about who did this and who did that. The order rectifies the position of 60,000 miners. I could probably claim to be the first person to raise the problem, but that is not important. It is unseemly that we have one voice from the Conservative Benches that challenges the merits of the order. That is a pity. I expected the order to receive a unanimous welcome from the House.
I was perturbed to be told that there were no problems in the Sherwood constituency when thousands of miners throughout the country had problems. It makes me suspicious that miners suffered not only harassment but political harassment because of the restart programme.
The history of the matter must be put on the record. The Minister knows that the miners' group had a meeting

with the Secretary of State for Energy. On behalf of the miners' group I want to be fair to the Secretary of State. At that meeting the right hon. Gentleman told us that he warned the Department of Employment of the consequences of forcing the order through, but that it insisted on it. I do not intend to make party political points or to indict the Under-Secretary of State for the legislative mess that was created.
The miners' parliamentary group met the Minister of State, Department of Employment who extended to us the greatest courtesy and understanding. He told us that we were the only people who had submitted documentary evidence to show the mistake that was made. He was anxious to rectify the problem and kindly assured us that he would do his level best to ensure that there was amending legislation.
The miners' group was persistent and met the chairman of British Coal. He assured us that the problem was not of his making and that, although he had tried to advise the Government of the anomalies, unfortunately Governments do not always listen. Ex-miners and redundant miners who are involved will welcome this retrospective legislation. Not only do I think that they will welcome the retrospection, but I believe that they will welcome it even more because the Minister has said that there will be retrospection until January 1988. That is important for many of the redundant mineworkers involved.
We have all seen such mineworkers at our surgeries. I had one lad coming to me with his wife and he was actually crying about how they were going to make ends meet. My hon. Friend the Member for Rother Valley (Mr. Barron) could probably tell the House about more threatening circumstances as a consequence of redundancy. The House should be under no illusion. This legislative mistake caused much distress among redundant miners, many of them in their early 50s or late 50s, who had given a lifetime of service to the industry. After having given that lifetime of service, some were practically unemployable.
I warmly welcome the order. It will give succour to 60,000 mineworkers. I do not give a damn about what union or what area they are in and I do not give a damn who takes the credit for it. Those miners are the people who will benefit and we welcome the order.

Mr. Spencer Batiste: It was, I believe, the late President Kennedy who once said that success had a thousand fathers, but failure was an orphan. As the announcement tonight is an undoubted success for the Government in responding to what is widely perceived to have been a serious injustice in the redundancy scheme, there are, inevitably, many hon. Members who are perhaps introducing a jarring note into what should be a response of wide acceptance of the scheme by Conservative and Opposition Members.
Undoubtedly it was correct, as my hon. Friend the Minister said in early debates on the subject, that technically the details of the scheme meant that those who participated in it would be subject to programmes such as the restart scheme. The reality, as was made clear by representations from many hon. Members, which they heard from many of their constituents, was that when the scheme was sold on the ground in individual pits, it was made clear to the people concerned that they would be


taking early retirement as part of a restructuring scheme. I see no immorality or inconsistency in that and I believe that the Government have acted properly and responsibly in treating what is widely perceived to have been a great injustice.
Much of the debate tonight has been about who was responsible for the process and how they were responsible. There may be those hon. Members who belong to the rottweiler tendency who believe that barking and biting is the only way to achieve anything. Equally, it is clear that there are many other hon. Members who believe that more patient and careful argument is more likely to succeed. It is immaterial who was jumping up and down in the House. What really mattered was that as the problem and its seriousness became manifest in constituency after constituency, all hon. Members who represented mining constituencies joined in representations to the Government, which have been so successfully vindicated.
One must recognise the complexity involved in coming up with such a scheme and its interaction with so many other parts of the legislative framework. It is good to see that both the Department of Employment and the Department of Energy are represented here tonight by Ministers. That reflects the complexity and considerable interaction the scheme has with legislation on a wide basis.
Clearly, this part of the restructuring has been concluded very satisfactorily and brings to a substantial conclusion the major restructuring of the coal industry which, it must be emphasised, has taken place without a single compulsory redundancy. It is only right to record clearly the thanks of the House and all hon. Members who represent mining constituencies that not only has that restructuring been achieved, but that it has been achieved with manifest justice. I speak on behalf of all Conservative Members in saying that this restructuring should lead to even greater success when the mining industry is returned to the private sector and miners can own a stake in the pits in which they work.

Mr. A. J. Beith: I represent a mining constituency—the only one in Northumberland with a working pit left. I warmly welcome the scheme and I decline the invitation of the hon. Member for Bolsover (Mr. Skinner) to join in a competition to see who contributed most to the achievement of this most welcome outcome. I congratulate the Government and express the thanks of the redundant miners in my constituency.
The order restores the position to what the miners thought it was in the first place. Let there be no doubt that miners believed at the time, and were led to believe, that they were taking early retirement. They were told, "You have worked for many years in the industry, but the industry now has to change. We should like you to retire early." In many cases, the miners' health was not all that good, and their chances of alternative jobs were almost non-existent, so they were told, "We will ensure that you have a satisfactory basis on which to retire early."
Much of the literature that the men received at the time referred to pensions, because early pensions were part of the package. If one talks to people about pensions, they tend to assume that they have retired. They tend to think that they have entered early retirement rather than a temporary interval after which they will be asked to go for interviews for another job. It came as a shock and a blow

to a great many miners to be presented with the awful choice between losing their benefits through not taking part in the restart scheme and entering the restart scheme and taking a badly paid job that probably would not last very long and permanently losing their right to all their benefits. Either way, they would lose, and that was a frightening prospect.

Mr. Skinner: Will the hon. Gentleman give way?

Mr. Beith: I think that the hon. Gentleman may wish to widen the terms of the debate—

Mr. Skinner: Will the hon. Gentleman give way?

Mr. Beith: Well, I have not—

Mr. Skinner: Go on. Give way.

Madam Deputy Speaker: Order. Is the hon. Member for Berwick-upon-Tweed (Mr. Beith) giving way?

Mr. Beith: I give way to the hon. Member for Bolsover.

Mr. Skinner: The hon. Gentleman referred to the restart scheme. In view of the contest in which he was engaged some time ago, does the hon. Gentleman think that Paddy Backdown would benefit from a restart scheme?

Mr. Beith: My right hon. Friend has plenty of excellent and useful work to do, as have I—both of us in the positions that we each now occupy.
As the Minister must realise, the miners who had to face that terrible choice have been through a miserable year, in which they have not known [Interruption.) Some hon. Members seem to think that the position of the redundant mineworkers who have been through what I am describing is amusing in some way; I must tell them that it is not. To be faced with the prospect of not being able to keep up the payments on their house or maintain their families in ordinary circumstances as in previous years was not at all amusing, and it is a great relief that that cloud has been lifted from them.
If the Minister is in the business of righting injustices in redundancy payments schemes in the industry, there are a few other things that he could do on the basis of his experience. I am sure that he would like to repeat the experience of gaining all-party support for his proposals. He could examine the position of opencast workers as we approach 1992 and the single European market. Opencast workers are still not treated in the same way as those covered by the scheme. The Minister could usefully consider that problem, because European money would be available to sort it out. He might also consider the position of the widows who did not get full housing benefit because the cash that they were receiving in lieu of concessionary coal disqualified them
The Minister has started on the useful course of righting injustices in redundancy payments and concessionary coal schemes. I hope that he will continue on that course, and will not be discouraged by those of his hon. Friends who say that the Government have no place in such activities and that we ought not to have such schemes. The Minister recognised in his speech that a major reconstruction of the coal industry could not have been achieved without unacceptable social cost without a scheme such as this. I hope that he will reject the criticisms—some of them implicit and some of them confused because they were associated with congratulations—that


have come from Conservative Members. My hon. Friends and I and Labour Members have warmly welcomed the steps that he has taken to put right what would otherwise have been a serious injustice.

Mr. David Ashby: I welcome the scheme in that it back-dates the original package to restructure the coal mining industry. Basically, early retirement has been provided for miners to put them in the same position as employees in many other industries. It was wrong to say in the original negotiations, "It doesn't matter, fellows—you can take your redundancy and effectively you will be retired; there will be a nod and a wink and you will not be asked to take part in any restart scheme; you will not have to look for another job, but you will be able to take unemployment benefit." That is a rather slipshod approach.

Mr. Jack Thompson: Will the hon. Gentleman give way?

Mr. Ashby: Perhaps I may finish my point before giving way.
A rather slipshod approach was adopted and it is a great pity that that was not recognised at the beginning.
There were many other industries which needed restructuring and in which employees worked long and hard hours doing dirty jobs. Britain has moved from heavy industry to light industry, and the system that we have introduced in the coal mining industry could have been used in many other areas. It is clear that there has been great injustice over the years. I accept that the miners suffered an injustice and I am grateful that it has been rectified. In any other restructuring of an industry we must ensure that we take account of the overall package. Let us be fair to all, not just to those in one industry.

Mr. Eric Illsley: I am surprised that so many Conservative Members are in their places to welcome the order. The hon. Member for Sherwood (Mr. Stewart) has said that not many of them were affected by the background that led to the introduction of the scheme and not many faced constituency problems.
I had a problem last year when a constituent committed suicide after he was put on a restart scheme. As the hon. Member for Berwick-upon-Tweed (Mr. Beith) said, this is no laughing matter. It is even less funny when we find that certain areas have been targeted for the restart scheme. My constituents were confronted with specific dates when 8,000 redundant mineworkers were to be brought in for interviews. I was informed of the dates, and it was obvious that the Department of Employment had a phased programme for bringing in redundant miners to complete their restart application forms and their interviews. I should imagine that that is a matter of record. I ask the Minister whether he will supply the terms of the record to hon. Members who are interested in them. We shall then be able to establish whether certain mining areas were targeted before other areas.
Perhaps I should remind Conservative Members that the redundant mineworkers payment scheme started in 1968, when miners received £200 or £300. They did not enjoy concessionary coal or weekly payments. The restart scheme was not introduced until the 1980s. The RMPS was not updated to its present level until 1983.
It is rather surprising to find in the Union of Democratic Mineworkers newspaper of last month a short quote from the Secretary of State for Energy suggesting that Roy Link was responsible for the order. It makes me wonder why the Minister bothered to come to the Dispatch Box today to tell us about it—it might have been better to announce it at the UDM conference at Weymouth. I ask the Minister again to supply a list of the targeted areas for the phasing in of restart interviews.

Mr. Michael Spicer: The last point that was raised by the hon. Member for Barnsley, Central (Mr. Illsley) sounds highly unlikely, but I will certainly look into it.
I am grateful for the warm and sincere comments that were made by many hon. Members. The hon. Member for Midlothian (Mr. Eadie) said that he thought that the order would receive a unanimous welcome. I thought that it did. The hon. Member for Bolsover (Mr. Skinner) was pretty sour throughout the debate, but hon. Members might have expected that from him. It has to be said that he has been pressing this matter upon us over several months. I should have thought that we would have detected from him a sense of exaltation and gratitude, but we did not.

Mr. Skinner: Tempt me a bit more.

Mr. Spicer: I will not tempt the hon. Gentleman. He has already made his feelings clear.
I am sorry that I did not add my hon. Friend the Member for Derbyshire, South (Mrs. Currie) to the roll of honour of those whom I mentioned—I am happy to do so—and who have been pressing hard on this matter.
I have nothing more to say to the House, other than that we have done the right thing tonight, and I hope that the House will approve the order.

Question put and agreed to.

Resolved,
That the draft Redundant Mineworkers and Concessionary Coal (Payment Schemes) (Amendment) Order 1989, which was laid before this House on 15th June, be approved.

BRUNEI (APPEALS) BILL [LORDS]

Order for Second Reading read.

Motion made, and Question put forthwith, pursuant to Standing Order No. 90(6) (Second Reading Committees),

That the Bill be now read a Second time.

Question agreed to.

Bill accordingly read a Second time, and committed to a Standing Committee pursuant to Standing Order No. 61 (Committal of Bills).

EUROPEAN LEGISLATION

Ordered,
That Mr. Harry Barnes be added to the Select Committee on European Legislation. —[Mr. Heathcoat-Amory.]

Health Service (South Glamorgan)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Heathcoat-Amory.]

Mr. Alun Michael: I hope that this debate as the latest in a series of attempts to resolve the future of the Health Service in south Glamorgan will have achieved its primary purpose by the time the Minister sits down and that we will at last have a decision on the 10-year hospital plan.
Massive disquiet has built up during nearly two years since public consideration of the health authority's 10-year plan started. It is more than 10 months since the document reached the Secretary of State for Wales. At that time, I urged him to reject the plan and to send the health authority back to the drawing board because of the manifest defects contained within it. Indeed, this is already a second attempt as, in the words used by the Secretary of State for Wales in his letter to me on 29 June, south Glamorgan's first round plan
was not approved because of significant inherent weaknesses
That means that the future of the Health Service in south Glamorgan has been under a cloud of uncertainty for far too long and desperately requires an injection of support and confidence from the Government. The Minister will be aware of many requests for a proper sense of urgency to be given to the matter. I refer to the terms of early-day motion 990 in my name and early-day motion 880 standing in the name of my hon. Friend the Member for Vale of Glamorgan (Mr. Smith).
The Minister will be aware also that concern was highlighted during the Vale of Glamorgan by-election, when the public gave their views to the Government in no uncertain terms. That concern was partly to do with local issues, including the future of Sully hospital, but it was accentuated by massive public rejection of the Health Service White Paper. After the election, a plea to the Secretary of State for Wales to back off was given in early-day motion 879.
It appears, however, that the Government are hell-bent on introducing the proposals of the Health Service White Paper into Wales, and neither the Secretary of State for Wales nor the Minister can avoid complicity in that intent which undermines and threatens confidence in the Health Service. The Secretary of State for Wales, in his letter to me on 29 June about the planning activities of health authorities in Wales, states that strategies will have to be "framed in the light of the White Paper".
He goes on to state that
the fundamental principles of the NHS remain unchanged under the White Paper,
which appears to be a ritual incantation by which Government Ministers hope to evade criticism and is simply untrue. But he then confirms that
the future roles of those involved in securing the delivery of service will change, and it is recognised that these changes will require a reorientation of the planning process to a new environment".
Put into simple English, that means that, during the 10 months that the 10-year plan has been in the Minister's in-tray, things have changed and it now needs to be assessed against the background of the White Paper proposals.
I challenge the Minister, in his reply to this debate, to

give just that context. I have already quoted the Secretary of State for Wales in support of my contention that we need to know how the White Paper will operate in Wales in order to judge the Government's decision on the hospital plan, but if further evidence is needed, just look at his words in the Welsh day debate on 1 March when he promised an early debate, confirmed that special factors in Wales required the White Paper to be implemented in a different way from England, and promised us separate and specific documents setting out how this would work. We are still waiting; everyone working in the Health Service in Wales is still waiting and the public in Wales are still waiting.
In a letter bearing the same date, ironically, Mr. John Wyn Owen, director of the NHS in Wales, stated:
detailed implementation of the proposals has to reflect the different organisational arrangements and the needs and circumstances of different parts of the United Kingdom".
The hope in the Welsh Office bunker now appears to be that it may get away with just the vague generalisations about Wales in chapter 11 of the White Paper. However, that just is not anywhere near adequate and I can tell the Minister that the Government simply will not get away with it. Let him now, tonight, tell us what has been decided about the south Glamorgan 10-year plan and precisely how that will fit into his right hon. Friend's plans for the Health Service in Wales as a whole.
There are many points to be clarified, hut, just to give a flavour, it would help if he will say tonight that there will be no hospital opt-outs in Wales. That will help us assess the validity of the hospital pattern in the county. The Secretary of State for Wales has tried to convey a softer tone than his colleagues in the Department of Health, but that is only skilful packaging unless his policies and decisions are to be different. As far as south Glamorgan is concerned, I demand that the Minister come clean and tell us how our Health Service will be run in future.
Coming to the contents of the 10-year plan, I will briefly list the main concerns and objections to the draft plan, and ask the Minister to ensure that his response includes specific reference to these points which were made formally to his colleagues at the Welsh Office over the past two years, so they should have been anticipated for him.
First, has the over-ambitious plan for a new district general hospital in the docks been rejected? The Minister should note that the unanimous view of the consultants, academics and others I have spoken to is that if it is built the health authority will not have the money to run it without serious damage and ward closures at the two existing district hospitals at Llandough and Heath—what a group of consultants described as
bleeding the existing services of all development just as happened when the Heath opened".
Has he taken into full account the reported views of clinicians on the plan? Will he also note that, for two years, development land has been blighted because of this particular proposal and Cardiff has lost actual jobs—I have been into the facts—because of this delay? Has he questioned the health authority on its extremely sketchy evaluation of the medipark which it proposes, but for which there is not room, and what is the result of his evaluation? I have been promised a response from the health authority on this, but it is still awaited and I hope its work has been more dependable and goes into greater detail than appears on present evidence.
Secondly, has the Welsh Office provided an answer to the question of how to provide south Glamorgan with proper, modern accident and emergency facilities? The Minister may recall that the whole rationale for a new DGH was that it needed to put such facilities somewhere. I have made alternative suggestions in order to provoke proper discussion. Has a proper job now been done on this matter?
Thirdly, has the Welsh Office undertaken a proper evaluation of the costs and practicalities of running the services set out in the plan as approved or amended by the Secretary of State's decision, which we now eagerly await? Will he give me an assurance that this information will be published so that the basis of his decision can be seen and understood? Is the Minister aware of the numerous challenges to the financial basis of the draft plan and has he been into this fully?
Fourthly, has the Welsh Office clarified the role of the neighbourhood hospitals referred to in the plan and will the Minister share that clarification with us? He must be aware that the vagueness on this point has caused great concern. The relationship between the neighbourhood hospitals and community services is not clear. Nor is the expectations on family doctors. The plan for the neighbourhood hospital in Barry is now quite well advanced, so these expectations should be made clear in the Welsh Office decision tonight. Does he not agree that it is ludicrous to conclude this expensive review of hospitals without also undertaking a serious review of primary care, and has he noted the worry on this point expressed by the college of medicine, the family practitioner committee and the local medical committee among others?
Fifthly, what is the timetable for the provision of neighbourhood hospitals? Does the Secretary of State accept the health authority criterion of one per 40,000 population? Does the plan now include a detailed timetable for their provision? This is a point I have pushed repeatedly, as it would be unacceptable to approve a plan which involves the closure of hospitals like the Royal Hamadryad without knowing that they are to be replaced with something better both in terms of health care and in terms of the living environment.
Sixthly, does the decision guarantee a secure future for Llandough hospital and Sully hospital? The Minister will be aware that these are two of the most appreciated and best loved hospitals in the country, and we want them retained. He will also be aware that the proposal to close Sully is the single most unpopular recommendation in the original plan. Tied to Llandough, it can have a secure future with its present usages, plus an expanded role in recuperation and therapy—where could there be a better site?—and it can provide a site for the neighbourhood hospital for the east of the vale of Glamorgan. I warn the Minister not to trifle with the views of people in my area and in that of my hon. Friend the Member for Vale of Glamorgan by giving us a decision that fails to deal satisfactorily with Sully.
Seventhly, will the Minister assure me that the decision takes into account the present constraint on nursing budgets and puts that right? It would be ludicrous to have a decision on plant and buildings which fails to deal with this point. At present, the nursing budget for Llandough,

for instance, is inadequate to pay the agreed number of staff because it is assumed that everyone is on the mid point of the scale. In fact, the hospital has stable staff, and this crazy system is a penalty for having loyal and well motivated nurses. It is a penalty for success, and that is why one ward is closed, staffing is on a knife-edge and the loyalty of people is being tested to the extreme. With the Welsh Office insisting on £2·1 million of cuts in this financial year, it looks as if the Government have a deliberate policy of uncertainty and demoralisation, so will the Minister offer us some reassurance and reverse this trend? Will he agree with me that any plan will have its problems if it is based on inadequate funding which continues to fall further and further behind the need?
Eighthly, does the decision take account of the need for the integration of the hospital plan—for the proposals from the health authority cannot be properly termed a health plan—with the services provided by family doctors and other community-based health services? There are many detailed concerns on this front of which the Welsh Office is well aware, and a decision which fails to answer this point will be empty and meaningless. Again, the White Paper is relevant. One doctor told me at the weekend that for the first time he wondered whether it was worth carrying on rather than taking early retirement because the Government will devalue the preventive and developmental work he has enjoyed, force him away from the patient care which brought him into medicine and push him into being a part-time accountant.
Will the Minister reassure us and tell us he is listening to the passionately expressed views of doctors and that Wales will be spared the policy of conflict and insult being pursued by the Secretary of State for Health and his pale shadow in Wales, the hon. Member for Delyn (Mr. Raffan)? It is impossible to underline this particular point enough. I have met doctors and received letters from doctors and listened to doctors. They resent the failure of the Government to listen to the voice of experience, they resent the threat to the relationship between doctor and patient, they reject the naive assumption that better health care will result from making a doctor undertake accountancy tasks, and they stress, from a professional point of view, that the man and woman in the street is right to fear the introduction of shopping around for the best buy when applied to medical treatment.
Will the Minister agree that we can do without this approach and that, in Wales at least, doctors will be regarded as human beings and professionals who need to be involved in the future design of our Health Service? That positive approach to doctors, I urge the Minister, is essential to make any plan work. Hundreds of my constituents have written sensible and thoughtful letters supporting the doctors' argument. Will he also reflect on the words of a surgeon who recently stressed to me that, as well as the nurses and technicians, the porters and ancillary workers are also vital members of his team, and that he was shocked and ashamed at the figures on their pay packets. Will the Minister set this plan in the context of humanity and teamwork?
Ninthly, will the Minister accept that the Welsh Office decision—unless it refers the whole business back to the health authority—must involve wholesale changes to the plan and that he should therefore allow a period of public discussion and comment before the Welsh Office decisions become final? I appreciate that individual closures, for instance, are subject to a specific procedure of comment


even after the overall plan is agreed, but the overall plan is fundamental to the future of our Health Service in south Glamorgan and should be seen to stand or fall on its own merits as an overall plan.
Tenth and finally, will the Minister tell us whether we will now have a plan which allows the public and everyone in the Health Service to plan ahead with confidence and enthusiasm, or is it a flexible friend for the administrators to manipulate as they will? He will be aware that the plan has been described by the health authority both in terms of certainty and uncertainty, and it is very important for us to know how dependable the decisions in it are. Will the Minister be very specific on this point?
I have concentrated on the main aspects of the plan, but the Minister must know that there are serious worries on all aspects of the future of our Health Service. Ambulance services, waiting lists, outpatient clinics, the pay of ancillary staff—described to me by one senior administrator as "scandalously and dangerously low"—community services, properly integrated paediatric services, preventative medicine, services for the elderly, specific services for women, and the threat to stability of the new general practitioners' contract are all important, too.
The key to the whole way in which the Health Service operates is the problem of chronic underfunding. Ministers may reflect the blinkered approach of the Prime Minister and claim that there is no problem of underfunding, but there is a serious problem and Ministers who ignore that basic problem and allow the Health Service to bleed to death will not easily be forgiven, certainly in Wales.
It will not be enough for Ministers to claim that decision-making and the deployment of resources have been devolved to the health authority. The Secretary of State appoints his majority to the health authority, and will do so even more under the White Paper. They are his creatures and most would not be there if elected, so he has to carry the can. The Health Service is the best-loved public service in south Glamorgan, and we want it treated with care and respect.
My constituents in Cardiff, South and Penarth want to know that they can depend on a well-planned Health Service in south Glamorgan, funded adequately to meet their particular needs as and when required, and staffed by people who are as much appreciated by the Government and the health authority as they are by the general public. They want that service set within a Welsh Health Service that is designed to meet the needs of the people of Wales. The Minister's announcements in answer to this debate will be totally inadequate unless I can carry back reassurances to them on each of those points.

The Minister of State, Welsh Office (Mr. Wyn Roberts): The hon. Gentleman has expressed his concern about the future of the Health Service in south Glamorgan and, indeed, a wider concern. I am sure that he recognises that the decisions of my right hon. Friend the Secretary of State for Wales on South Glamorgan health authority's strategic plan and the future of cardiac services in south Wales are all-important in that context. It was my right hon. Friend's intention to announce his decisions on those matters today. However, I am sure that it would be helpful to the House if I outlined the main points now.
Some 59 representations have been received by my right hon. Friend about the strategic plan since it was submitted in October 1988. Those were made by a wide range of people and organisations, including hon. Members, members of the public, community health councils, local councillors and individual medical personnel.
My hon. Friend welcomes the broad objectives underlying the guiding principles for the 10-year strategy as set out in the plan. Those are reprovision of the accident and emergency service; early provision of a new cardiac unit; improved specialty groupings; enhancement of academic and research facilities; improved condition of the estate; and minimum revenue costs in order to finance high-level capital expenditure.
My right hon. Friend has agreed that future acute services should be rationalised and concentrated on three major acute hospital sites—the University hospital of Wales, Llandough, and a new hospital on a third site to be decided by the authority. The new hospital, which will have an important teaching function, will provide accident and emergency services with related specialties from a location with good road communications with the rest of the county.
My right hon. Friend has also agreed and welcomed the concept of neighbourhood hospitals which bring elements of health care closer to local communities and welcomes, in broad terms, the more involved role intended for general practitioners and primary health care teams. However, he feels that the authority should work closely with the South Glamorgan local medical committee and family practitioner committee working party on neighbourhood hospitals in drawing up those plans.
On regional services, the authority's proposals are broadly in line with departmental policies, and we would expect South Glamorgan district health authority to continue to play a major role in providing regional services to patients from all parts of Wales.
One aspect of the strategic plans that attracted particular attention was the suggestion that the main cardiac surgery and cardiology unit should he moved to Llandough hospital from the University hospital of Wales, in conflict with the Department's existing policy of development at the UHW. Clearly the location of the regional cardiac unit would have a significant effect on the strategic plan as a whole.
Before commenting on my right hon. Friend's decision on cardiac services in south Wales, I shall correct a false impression created by some hon. Members. Since the then Secretary of State for Wales accepted in 1984 the Welsh Medical Committee's report on cardiac services, it has been Welsh Office policy to expand the unit at the UHW. There has been considerable success in increasing the number of open-heart operations performed there. During the 1980s, it has doubled. However, it has not expanded rapidly enough, and there have been difficulties in overcoming the obstacles to increased throughput. It is not true to say that no progress has been made or that there has been no investment. Real development has been achieved and we funded it—but we want to do better because the toll of death and disability from heart disease in Wales demands it.
My right hon. Friend accepts the Royal College of Physicians' estimates of required throughput, and he has slightly improved on it so that we can aim at achieving 1,200 open-heart operations per year. My right hon. Friend noted the royal college's recommendation that the


centre of excellence that Wales needs should be located at the University hospital of Wales, where the necessary clinical, diagnostic and other support services would be available, and which is the preferred academic base. Most respondents to the consultation supported that view, and so does my right hon. Friend. He believes that the UHW, not Llandough hospital, is the right location for the main cardiac unit.
The royal college report argued that such a unit should perform all the open-heart operations required. At 1,200 adult and paediatric open-heart operations per year, it would be a very sizeable unit. Not uniquely so, but large—particularly in the context of the UHW. The health authority argued in its strategic plan that that was not practicable, and my right hon. Friend shares that view. He considers that it would distort the critical balance of the UHW and that the construction phase would cause unacceptable disruption to services and to the comfort of patients and staff. As a consequence, he decided that the adult unit at UHW should be expanded to perform 800 open-heart operations a year and that a second unit should be built after a thorough appraisal of the options.
The health authority has today been asked to set the development of the main unit in train. In addition, it has been invited to submit proposals for increasing the number of cardiac operations commissioned through the authority from 600 to 800 a year.
South Glamorgan health authority's plan contains broad proposals for the closure of hospitals and other substantial variations in the service provided by the district health authority. My right hon. Friend's decision on the overall strategy, including his approval in principle to the rationalisation proposals, in no way removes the need for the health authority to secure individual approval for such changes at the appropriate time. If the authority decides to pursue a particular change, each proposed closure or substantial variation in the service provided must be subject to separate and detailed formal consultation nearer the time of implementation before they could be effected. In the event of local opposition, my right hon. Friend would consider appeals and decide the matter.
Copies of my right hon. Friend's decisions on the strategic plan and cardiac services in south Wales will be available from the Vote Office later today. Following my right hon. Friend's decisions, the future planning work to be undertaken by the health authority will take account of the elements of the submitted plan on which he has called for further work. These will he included in a full and revised strategy as part of the second round of strategic planning in common with the other district health authorities of Wales. The preparation of the new strategy

will enable the authority to take full account of the likely changes brought about by the Government's White Paper "Working for Patients" and the guidance given by my right hon. Friend will provide a firm basis for the authority to review its plan. We look forward to receiving the authority's new plan in due course. Meanwhile, later this year, the Welsh Office proposes to issue guidance for all authorities for undertaking the second strategic planning round. It will, of course, be essential that a close dialogue is maintained between the district health authority and the Welsh Office.
I sincerely hope that all who are concerned with, or have an interest in, the future pattern of health services in south Glamorgan will see my right hon. Friend's decision as a clear and sound basis on which to build and develop an up-to-date service for the future.

Mr. Michael: Why has the two general district hospitals option, favoured by most professionals, been rejected? Will the Minister confirm that the site of the third GDH will not now be at the Cardiff docks? What is his decision on Sully hospital? Many people await that announcement. Has the hon. Gentleman fully evaluated the costs? Has a decision been taken on the programme for neighbouring hospitals to meet the requirements throughout the county?

Mr. Roberts: I have covered the point about the neighbourhood hospitals.
The plan says that some 2,400 acute beds will be required in the south Glamorgan area. We believe that that figure is somewhat excessive and that it should be about 2,100. Even so, as I am sure the hon. Gentleman will recognise, if those beds were to be divided between two hospitals, it would mean about 1,000 acute beds each. That would be a very large hospital, bearing in mind that the University hospital of Wales has some 880 acute beds. That is the basis of the decision in favour of three hospitals, rather than two. I cannot tell the hon. Gentleman where the third hospital will be located. Indeed, we have not told the authority as much. It is for the authority to decide. We have, however, stated that the hospital must be sited in a place where access is good.
I am sure that the hon. Gentleman has noted what I said about the closure proposals, and that certainly applies to Sully hospital and any other hospital.
As for financing of the strategic plan, it is difficult to anticipate all the financing details in a 10-year plan, but my right hon. Friend the Secretary of State has asked me for a revised and more robust financial plan. That is amply described in the decision letter.
We hope thereby and with these decisions to build up a worthy service which can realistically be achieved for the benefit of the people for whom it is provided.

Question put and agreed to.

Adjourned accordingly at four minutes past Two o'clock.